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Open Economy Macroeconomics / International
Macro
(Econ 472)
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Theo S. Eicher
Caster Professor of Economics
Department of Economics
305 Savery Hall, Box 353330
University of Washington
Seattle, WA 98195-3330
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teclass@u.washington.edu http://faculty.washington.edu/te
Phone: (206) 685-8082
Office: Savery 355
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Course Description
The course
presents International Monetary Economics theory and applications. The goal is to
provide the student with a deep understanding of the economic frameworks necessary
to analyze current policy issues. Theories presented in this course cover exchange
rate determination, international arbitrage, as well as monetary and fiscal policy
in an open economy. Policy issues covered include the US trade deficit, the value of the dollar
relative other currencies, financial crises, currency crises, and the economic linkages
between countries.
Homework:
• The required textbook is "International Economics" by J. Mutti, T.S. Eicher, and M. Turnovsky (7th Edition, Paperback, Routledge 2009).
• The required newspaper for the class is the Wall Street Journal. Here is a link to order the paper online at a student discount. Online ordering provides the fasted access, the most efficient ordering, and the best student discount.
• Homework problem sets must be completed before class in order for students to participate in class discussions.
• If Case Studies have questions (usually at the very end of the link) you are expected to have written out answers when you come to class. You may be asked to turn them in and have them graded as a HOMEWORK.
• All homework problem sets must be typed; graphs and equations may be handwritten.
• The final presentation must be in slide deck format (e.g., PowerPoint).
• You are expected to read the WSJ every day; always before class. If you don't have time for the entire paper, you must read at least the FX GLOBAL CALL online column. You find the column in this WSJ link.
If the link does not work for you, go the WSJ homepage www.wsj.com, find the SEARCH are on the top right of the page, "FX GLOBAL CALL" (include quotation marks), and read the column from before 10 am pst the day of each class.
Miscellaneous:
·
If you have special needs, requests, requirements, please come see
me immediately.
· Policy on academic misconduct: Without exception, any case of suspected cheating is
irectly reported to the UW Office of Community Standards and Student Conduct. If cheating is confirmed, the penality is a grade of zero for the course, and possible expulsion from UW. Investigations of suspected cheating may be noted on the student's permanent academic record. For information on academic misconduct and the UW policy, please read http://www.washington.edu/uaa/advising/help/academichonesty.php
Grading:
· Late homework cannot be accepted as answers are posted immediately
after class.
· If you miss an exam for valid/documented reasons (see Student Handbook),
I invite you to talk to me how to make up the exam.
· Past exams are located at (link)
· Your grading is based on
-
70% Quiz/Midterms (10% per quiz, the remainder is allocated
equally among midterms)
- 20% Written homework assignments
(the final paper counts as one homework)
- 10% Group presentation
A) Common Misconceptions
Misconception #1: The purpose of classes/assignments
is to prepare student for exams.
The purpose of classes and assignments
is to achieve command of the material. If you have command of the material, you
will do well on the exams.
Misconception #2: It is the instructor's job to cover
the material.
Covering the material is the purpose of the textbook. The textbook is to be read by the student. The role of the instructor
is to help the student grasp the material, to guide students in their learning,
to reinforce essential concepts, and to show how the material can be applied to
solve problems.
Misconception #3: Since students read learning from
the book, there's no need to go to the lectures.
The lectures, the reading, and the
homework combine to produce true comprehension. Lectures orient students in learning the material and allow for practiced applications.
B) How do I succeed?
A great way to learn economics is
to do economics. Actively talking and thinking economics is crucial to further your economic intuition. One way to do so is to actively participate
in class, where we puzzle through policy applications and real world problems. It
is very atypical for someone to learn economics by simply watching the instructor
perform or by reading a book.
I value class participation,
but this does not mean I value only correct answers! 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.
Computers are often helpful in long lecture classes. In interactive classes like Econ 472, the computer will impede your learning. Think about it this way: if you are typing in an attempt to capture what's going on, you are depriving yourself of the opportunity to actively think about the question at hand. I strongly urge you to focus on class interaction and leave the computer in your backpack.
C) Teaching Philosophy
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. Let me quote from
Erich Fromm's To Have or to Be where he provides a good example of
the type of learning I favor. Fromm distinguishes between a "having" mode
(acquiring stuff) and a "being" mode (experiential living):
…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. (E. Fromm, To
Have or to Be," 1978, London: Sphere
Books: chapter II
Learning Goals:
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Understand and be able to use the terminology of the international
macro economy
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Understand the fundamental determinants of exchange rate movements
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Understand alternative approaches to exchange rate regimes and their
implications
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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.
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Be able to understand the currency market sections in popular newspapers,
their value, lingo, and representation of current events
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Collect, use and interpret economic data to provide a country analysis
of international transactions and economic conditions
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Display economic data in a meaningful manner, consistent with economic
models to interpret country performance.
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Assess critically the economic content of newspaper and journal articles
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Be able to express ideas to others visually, verbally, and in writing
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Contribute to live analysis of economic puzzles using arguments rooted
in economic models.
Netiquette:
Internet Etiquette is required for this course. It is detailed by Virginia Shea's Netiquette (Albion Books, 1994. http://www.albion.com/bookNetiquette). The basic professional netiquette communication guidelines include (but are not limited to):
- Email communication must include a subject line to identify the topics of email, a salutation, a body, and your full name in the closing line, just like any other business letter.
- Correct and proper English, including complete sentences and spelling are required in all communication (no "emoticons" [J, :p), ;)] or acronyms [btw, g2g, lol], IM, chat, or other email slang.
- Do not write anything in an email that you would not say exactly the same way to someone standing in front of you.
Important Notices:
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If you had problems downloading readings/case studies, please send
me an email asap, THANK
YOU!
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All homework assignments are links that you can reach from this web
page.
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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.
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The outline is preliminary
and subject to change. Please check before every class!
OUTLINE
Presentation Guidelines
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The presentation is designed to apply the
Mundell Fleming Model to the real world.
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Each country is covered by two groups. One group covers the pre crisis events; the other group covers
post crisis events.
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Each group presents for 25 minutes to leave
room for questions.
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Presentations must show each step of country’s economic crisis using the Mundell
Fleming model.
- Execution of the Mundell Fleming analysis requires data from the IMF's International Financial Statistics (IFS). No other data source is allowed (except by explicity instructor permission). Log into IFS via the UW library and download all data necessary for a Mundell Fleming analysis. Use the highest data frequency available (monthly, quarterly, annual). Deflate values so you obtain the necessary REAL values. Only real values will be accepted.
Structure of the Presentation
1.
DATA. First deliver a succinct account/outline of the key economic
conditions / IFS data for the pre or post crisis (depending on your 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)
A key learning component of the group work is the discussion within
your group. You must work together in synthesizing
ideas and graphs, so that one unified picture emerges for the class, while parts
1-5 remain clearly distinguishable.
Paper Guidelines
Please compose
a paper, double spaced, about 5 pages of text (excluding data and graphs), to cover a currency crisis (pre and post) of one of the countries that
we discussed 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 is again an application of the
Mundell Fleming Model. The Paper guidelines are identical to the presentation guidelines
above. This is your chance to show that you
can apply the theory to the practice!