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Instructor: |
Theo S. Eicher |
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Office: |
330 Savery Hall |
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Office hours: |
Mo/Wed 11-12 (please schedule at http://www.econ.washington.edu/user/te/officehours/) |
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Class web page: |
http://depts.washington.edu/teclass/ (username: econ472, password: econ) |
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Class Blog |
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Email: |
teclass@u.washington.edu (answered twice a week after office hours) |
Course
Description
This course presents International Monetary
Economics theory and applications. The goal is to provide the student with a
deep understanding of current policy issues. The theory presented in this
course covers a broad range of topics including exchange rate determination,
monetary and fiscal policy in an open economy, the balance of payments, the
choice of exchange rate systems. The theory enable us to discuss topics such as
the
Homework:
· This course represents a learning process. I expect every student to respect the integrity of this process. That entails reading assignments before class and participating attentively in class discussions.
· The OUTLINE below sequences dates, topics, and homework.
· The textbook for the class is "International Economics" by J. Mutti, T.S. Eicher and M. Turnovsky (7th Edition, Paperback, Routledge 2009). The book will be abbreviated with “IE” below.
· The newspaper for the class is the Wall Street Journal. You are expected to read the paper every day before class. If you don’t have time for the entire paper, you must read the “Currency Market” or “Foreign Exchange” section(s). If you read the WSJ online, you can search every day for keywords such as "exchange rate" and find out articles that you might miss in the printed edition.
· You will be engaged in class to show that you can employ the assigned readings to conduct economic analysis.
· All written homework must be typed; Graphs and equations can be handwritten.
· The final presentation must be in PowerPoint.
References
Books that may be helpful to obtain alternative explanations of what you have learned in class:
·
Caves, R.E, J.A Frankel and R.W. Jones. World
Trade and Payments. NY:
· Mankiw, G. Macroeconomics NY Worth Publishers This is a good review for the first quiz.
· Krugman, P. and M. Obstfeld International Economics McGrawHill.
Miscellaneous:
· If you have special needs, requests, requirements, please come see me immediately.
· I believe in the Honor Code. Students are on their honor not to cheat and to report instances of cheating that they observe. In exchange, it was a violation of the honor code for professors to suspect cheating for example, by proctoring exams or refusing to give take-home exams. Under the honor system students have a twofold obligation: individually, they must not violate the code, and as a community, they are responsible to see that suspected violations are reported.
Grading:
· Late homework cannot be accepted, since answers are posted immediately after class on the web site.
· If you miss an exam for valid and documented reasons (see the Student Handbook), I invite you to talk to me how you'll be tested to show your knowledge of the covered material.
· Your grading is based on
o 50%, One Quiz and two midterm exams
o 20%, Contribution to the analytical discussions in class, to prove your ability to utilize the assigned and learned material for economic analysis. (Note that class contribution grade does not include class attendance! That is, you do not get a grade just because you attended class)
o 20%, -- Written homework assignments (the final paper counts as one homework)
o 10%, -- Group presentation
· I encourage you to come to my office hours. If you have a time conflict with my office hours, talk to me and we arrange an alternative time.
Preparation for Class
Misconception
#1: The purpose of the classes and assignments is to prepare
the student for the exams.
The real purpose of the classes and homework is to achieve
command of the material. If you have command of the material, you should do
well on the exams.
Misconception
#2: It is the teacher's job to cover the material.
Covering the material is the role of the textbook, and the
textbook is to be read by the student. The instructor should be doing something
else, something that helps the student grasp the material. The instructor's
role is to guide the students in their learning: to reinforce the essential conceptual
points of the subject, and to show their relation to the solving of problems.
Misconception
#3: Since you are supposed to be learning from the book,
there's no need to go to the lectures.
The lectures, the reading, and the homework should combine to
produce true comprehension of the material. For most students, reading the text
won't be easy. The lectures should serve to orient the student in learning the
material.
A great way to learn economics is to do economics. That is, you learn it by active participation in class as we puzzle through policy applications. It is very unusual for someone to learn economics by simply watching the instructor perform. For this reason, the homework is THE heart of the course and more than anything else, (group) study time is the key to success in Econ 472.
I value class participation, which does not mean that I value only correct answers! Wrong answers are part of the process of tying to tackle difficult questions. Class participation can make a big difference in your learning. Actively talking and thinking economics is crucial to further your economic intuition. If you are not prepared to answer a question you can simply answer PASS to deflect a question without consequence. However, PASSING all the time is a negative signal.
I realize
that my teaching philosophy may not be altogether standard, and would like to
make every effort to communicate to you beforehand what to expect. To help you
make an educated choice if this class is right for you, let me quote a bit from
Erich Fromm's To Have or to Be (1978
…Students
in the “having” mode of existence will listen to a lecture, hearing the words
and understanding their logical structure and their meaning and, at best they
can write down every word in their loose-leaf notebooks so that later on they
can memorize their notes and thus pass an examination. But the content does not
become part of their own individual system of thought, enriching or widening
it. The student and the content of the lectures remain strangers to each other,
except that each student has become the owner of a collection of statements
made by someone else.
…The process of learning has an entirely different quality for students in the “being” mode. To begin with, they do not go to a course of lectures as tabulae rasae [Latin for "blank slates"]. The have thought beforehand about the problems the lectures will be dealing with and have in mind certain questions and problems of their own. They have been occupied with the topic and it interests them. Instead of being passive receptacles of words and ideas they listen, they hear and most important they receive and they respond in an active, productive way. They do not simply acquire knowledge that they can take home and memorize. Each student has been affected and has changed: each is different after the lecture than he or she was before it.
From Erich Fromm "To Have or to Be" (1978
I will make every attempt to engage you actively, to make your mind work in this class rather than bombard you with lectures. I may call on students randomly and also take hands, as I am interested in the effect each class is having on the individual. This is not meant as a test of your attention: rather, it is in keeping with the being philosophy Eric Fromm has so eloquently articulated.
Learning Goals:
· Understand and be able to use the terminology of the international macro economy
· Understand the fundamental determinants of exchange rate movements
· Understand alternative approaches to exchange rate regimes and their implications
· Be able to analyze the impact of fiscal, monetary and exchange rate policy in the open economy and their impact on interest, prices, employment and output.
· Be able to understand the currency market sections in popular newspapers, their value, lingo, and representation of current events
· Collect, use and interpret economic data to provide a country analysis of international transactions and economic conditions
· Display economic data in a meaningful manner, consistent with economic models to interpret country performance.
· Assess critically the economic content of newspaper and journal articles
· Be able to express ideas to others visually, verbally, and in writing
· Contribute to live analysis of economic puzzles using arguments rooted in economic models.
Important Notices:
·
If you had problems downloading readings/case
studies, please send me an email asap, THANK YOU
· All homework assignments are links that you can reach from this web page.
· Most of the case studies have questions on the very last page; please scroll to the end of the document.
· you are expected to have written out answers to the case study questions. You may be asked to turn them in and have it graded as HOMEWORK.
· Please note that I select case studies for their educational content, NOT according to their publication date. If a case study may strike you as “out of date” please keep in mind that these applications are meant to teach you using real world situations, not inform you about current events.
·
The outline is preliminary and subject to change. Please check
before every class!
OUTLINE
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Date |
Topic And Key Teaching Points |
Reading Assignment and written Assignments due. (The assignments in each row are to be completed for the class date in the same row) |
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Jan 4 |
No class |
A make up class for the missed Jan 4 session will be arranged during class |
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Jan 6 |
Introduction: Understanding
the Syllabus and the Course Background on 2008- Financial Crisis |
Imperative: IS/LM REVIEW (not comprehensive) · IE CH 1 Optional (but strongly encouraged): The
giant pool of money (To listen, click on “Full Episode) If you have not had enough, listen to act 2
of |
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Jan 11 |
Essential Terminology · Balance of Payments · Exchange rates, markets, regimes · Marshal Learner Condition · J Curve |
· IE Ch 12 and 13 (ignore case studies in the chapters) · Case Study: J-Curve (Currency Weakness Stands To Boost U.S. Companies) ·
Case
Study: Supply and Demand for Foreign Currency (Who's in Charge of Determining |
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Jan 13 |
History of Exchange Rate Regimes · Pros and Cons of the Gold Standard · Species Flow Mechanism · Bretton Woods |
· IE Ch 21 (ignore case studies in the chapter) ·
Effects
of UK ending the Gold Standard. FDR Ends the Gold Standard (youtube) · Nixon Ends Bretton Woods (youtube) · Case Study (Would a Gold Standard Save the Dollar?) |
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Jan 18 |
Martin Luther King Day |
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Jan 20 |
The Simplest Small Open Economy Model · Assumptions · Implications · What does the data say? · Policy Implications · Fiscal / Monetary Policy |
· IE Ch 14 (skip section on flexible exchange rates) · Case Study 1 (Japanese Piggy Bank) · Case Study 2 (Solow Modigliani) · Possible quiz on case studies |
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Jan 25 |
The Large Open Economy · Assumptions · Implications · Comparison of Multipliers · Policy Implications |
· IE Ch 14, pages 449-454 · Case Study (Switching Engines) |
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Jan 27 |
· Expenditure Switching · Expenditure & Reducing · Flexible exchange rates |
· IE Ch 15 pages 435-top of 443. ·
Case
Study (Expenditure Switching In · Is your IPod unpatriotic? (youtube) · Trade Wars and Buy American (youtube) · IE Ch 14 p. 422-426 |
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Feb 1 |
Who Needs Policy?
· Monetary Approach to the Balance of Payments (Mundell’s version of the Species Flow Mechanism) · Non sterilization |
· IE Ch 14 pages 443-446 · Case Study (Basic Instincts) |
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Feb 3 |
Midterm I (1 hour, 50 minutes) |
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Feb 8 |
International Capital Markets · Overview · “The Billion Dollar Day” · Assignment of Presentation Groups |
· IE Ch 16 up to p486 |
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Feb 10 |
Short Term Capital Market Movements: Fundamentals of Technical Analysis ·
Guest
Speaker: |
· IE Ch 16 p486-end · Case Study (Technical Analysis) · Morales Slide Show (uploaded after presentation) |
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Feb 15 |
Presidents Day |
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Feb 17 |
Modeling International Capital Markets · Interest Parity and the Capital Account · Derive External Balance (BP = 0) · Integrate External Balance into IS/LM |
· IE Ch 17 · Case Study (The Mother of All Carry Trades) FYI: Thawing Dollars |
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Feb 22 |
Mundell Fleming Model: Fixed Exchange Rates
· Goods Market, Financial Market, External and Internal Balance · Fiscal and Monetary Policy |
· IE Ch 18 Case
Study (Pegged) (hint: think how RISK will shift the BP=0 line) |
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Feb 24 |
Mundell Fleming Model: Flexible Exchange Rates
· Fiscal and Monetary Policy · Goods Market, Financial Market, External and Internal Balance |
· IE Ch 19 up to p572 · Case Study1 (Das Kapital Flows) |
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Mar 1 |
Mundell Fleming Model: Large Open Economy Price Adjustments in the Mundell Fleming
Model Price Flexibility · Sticky Prices and Mundell Fleming Purchasing Power Parity, Law of One Price |
· IE Ch 19 p572-end · Case Study ($@1.5) · Case Study2 (Eurozone) IE Ch 20 up to p610 · Case Study ( Mac Sizzling) |
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Mar 3 |
Midterm II (1 hour, 50 minutes) |
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Mar 8 |
Mundell Fleming Model: Real World Applications ·
Presentations
Hong Kong / |
Start your research with the Library's · Sample Presentation (without commentary) · Currency Crisis Links (web link) |
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Mar 10 |
Mundell Fleming Model: Real World Applications ·
Presentations
Hong Kong / |
Start your research with the Library's · Sample Presentation (without commentary) · Currency Crisis Links (web link) |
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Mar 15 |
Paper due 5 pm under my office door |
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Presentation Guidelines
1. The primary focus of the presentation is to apply the Mundell Fleming Model to the real world.
2. Each country will have two groups. One group covers the pre crisis events; the other group covers the post crisis events. Each group presents for 25 minutes to leave room for questions.
3. The presentation must show each step of the economic crisis using the Mundell Fleming model. This requires COLLECTION AND PRESENTATION of monthly, quarterly and annual data on all the variables that are important to the Mundell Fleming model (i.e., REAL values of exchange rates, interest rates, income, money supply, and all aggregate demand components, the key BOP components etc ) to correlate the movements of these variables with the model.
Good places to start your research are the reference desk at the library and the IFS (International Financial Statistics database) or via the class website's links.
Structure of the Presentation
1. DATA. First deliver a succinct account/outline of the key economic conditions / data in either pre or post crisis (depending on the assignment). This data must include all variables necessary for the Mundell Fleming model (5 min)
2. ANALYSIS. Second, analyze the economic performance using the Mundell Fleming Model (10 min)
3. POLICY. Third, outline which policy measures were (or were not) taken, how the data changed in response to policies, utilizing the Mundell Fleming Model (5 min)
4. FORECAST. Finally, present a forecast for the country, including policy recommendations, as visualized by the Mundell Fleming model (5 min)
Part of the group work is the discussion part within your group. You must work together in synthesizing ideas and graphs, so that one unified picture emerges to the class, and that parts 1-6 are clearly distinguishable.
Paper Guidelines
Please compose a paper, double spaced, about 5 typed pages long, which covers a currency crisis (pre and post) of one of the countries that we discuss during the presentations part of the course. The country you cover in your paper cannot be the one that you presented to the class. The paper will cover pre and post crisis.
I expect this paper to be an application of the Mundell Fleming Model; its guidelines are identical to the presentation guidelines above. This requires a maximum use of data (see above), to apply a maximum of graphs, Mundell Fleming diagrams, and concepts covered in class to explain the crisis. This is your chance to show that you can apply the theory to the practice!