Course Homepage for
Topics in International Monetary and Financial Policy
Summer semester 2005, The Graduate Institute of International Studies
Taught jointly by:
Professor Alexandre Swoboda (Rigot, 11A, Avenue de la Paix)
Signe Krogstrup (Rigot, 11A, Avenue de la Paix)
Course Description
General Topics and Teaching
Specific Topics and Student Presentations
Other Relevant Readings
Links
Course Description: The course covers theoretical and policy issues concerning global current account imbalances, exchange rates and policy coordination. Four topics are treated in more detail: The theory and empirics of current account determination and the link to current global imbalances and exchange rates; The role of fiscal policy for current account determination and the issue of the “twin deficits”; Monetary and/or fiscal policy coordination as a means to influence global imbalances; and finally, Fiscal rules and the Growth and Stability Pact as an example of fiscal policy coordination. The latter topic will look at pros and cons of and alternatives to the current fiscal policy framework as paid out in the Growth and Stability Pact. The course is designed for DEA students specializing in economics.
The course will be based on teaching of some background issues, and presentations and discussions by students. Each student will give a presentation and act as a discussant during the course.
Time and Place:
Tuesdays 16:15 in R3, Rigot
Grading:
The grade for the course will be based on three factors: Presentation (50%),
Discussant (25%), participation in class (25%)
GENERAL INTRODUCTION TO THE TOPIC (3-4 SESSIONS):
1. The Current Account
a. Balance of Payments Accounts
b. Current Account and National Accounts
c. Nominal and Real Exchange Rates and the Terms of Trade
d. Current Account Determination – Traditional Models
Background Readings: Burda and Wyplosz, Macroeconomics, a European Text, Third Edition, Chapter 7. Students should also be familiar with National Income and Balance of Payments Accounts, Chapter 2 of Burda and Wyplosz.
2. The Intertemporal Approach
to the Current Account and other Issues
a. The Intertemporal Approach: A Simple Model
b. Sustainability of the Current Account
c. Ricardian Equivalence
Background Readings: Obstfeld and Rogoff, Foundations of International Macroeconomics, 1996, Chapters 1.1; 1.2; 2.1.1; 2.1.2. (3.1 and 3.2 will be added if time permits).
Handout on the intertemporal approach downloadable here (Note: This is an updated version, 23rd March 2005. This file includes the two figures which were missing in class, but these can also be downloaded separately here: Figures1&2 )
NB! Relevant Point d'actualité HEI. Wednesday 23rd March at 12:30 -
13:30, Professor Charles Wyplosz will give a short presentation followed by
a debate on one of the themes of our course: "Si le dollar chute: un monde
sans boussole". The event will take place in Auditorium Jacques Freymond,
132 rue de Lausanne. It is highly recommended to go.
3. The Mundell Flemming Model
a. Fiscal Policy and the Current Account
b. Twin Deficits
c. Foreign Exchange Intervention and Sterilization
d. Two-Country Approaches
Background Readings: Appendix to Chapter 18, Robert Mundell, 1968, International Economics and a Handout.
SPECIFIC TOPICS ON CURRENT POLICY ISSUES
4. Global Macroeconomic Imbalances:
The Stylized Facts
a. Freund, Caroline, 2000, Current Account Adjustment in Industrialized Countries,
International Finance Discussion Paper no. 692, Board of Governors of the Federal
Reserve System.
b. Section 1 of Obstfeld, M. and K. Rogoff, 2004, The Unsustainable US Current
Account Position Revisited, NBER Working Paper no. 10869, Pages
5. The Current Account and the
Exchange Rate
a. Mussa, Michael, 2005, Exchange Rate Adjustment Needed to Reduce Global Payments
Imbalances. In Bergsten (ed.) Dollar Adjustment: How Far? Against What? Institute
for International Economics, Washington D.C.
b. The rest of Obstfeld, M. and K. Rogoff, 2004, The Unsustainable US Current
Account Position Revisited, NBER Working Paper no. 10869, Pages
Presentation of Mussa (2005)
by John Owens
Discussant: Roland Spichiger
6. Fiscal Policy and the Current
Account: The US “Twin Deficits”
a. Gramlich, Edward M., 2004, Budget and Trade Deficits – Linked, Both
Worrisome in the Long Run, but not Twins, Economic-and-Financial-Modelling.
Summer 2004; 11(2): 53-65 (only available online in speech form)
b. Truman, Edwin M., 2004, Budget and External Deficits: Not Twins but in the
Same Family. Paper presented at the Annual Research Conference of the Federal
Reserve Bank of Boston on Macroeconomics of Fiscal Policy, June 14-16, 2004.
Background reading: Dudley, William C. and Edward F. McKelvey, 2004, The US Budget Outlook: A Surplus of Deficits. Global Economic Paper 106 (March 31), New York, Goldman Sachs.
Presentation of Truman (2004)
by Yannick Vennes (download slides here)
Discussant: Pascal Towbin
7. International Policy Coordination:
Exchange Rates and the Current Account
a. Dooley, Michael P., Folkerts-Landau, David and Garber, Peter, 2003, An Essay
on the Revived Bretton Woods System, National Bureau of Economic Research, Inc,
NBER Working Papers: 9971
b. Dooley, Michael P., Folkerts-Landau, David and Garber, Peter, 2004, The Revived
Bretton Woods System: The Effect of Periphery Intervention and Reserve Management
on Interest Rates and Exchange Rates in Center Countries, National Bureau of
Economic Research, Inc, NBER Working Papers: 10332
c. Roubini, N. and B. Setser, 2005, Will the Bretton Woods 2 Regime Unravel
Soon? The Risk of a Hard Landing in 2005-2006. Mimeo, Stern School of Business,
New York University
Background Readings: Meyer, Laurence H., Brian M. Doyle, Joseph E. Gagnon and Dale W. Henderson, 2002, International Coordination of Macroeconomic Policies: Still Alive in the New Millenium? International Finance Discussion Papers no. 723. Board of Governors of the Federal Reserve System
Links/Readings of interest ot this
topic :
- Nouriel Roubini and Cleveland Fed Economist David Altig online blog about
the US financing of the current account and fiscal deficits here.
- Martin Wolf, Global Imbalances
will require Global Solutions, FT, 27th April 2005.
Presentation of Dooley (2003,
2004).
Discussant: Leonardo Iebraa
8. International Policy Coordination:
Fiscal Rules and the Stability and Growth Pact
a. Stylized Facts on Budget Deficits and Debt in OECD countries
b. Common Political Economy Explanations for Deficit Biases
c. Fiscal Rules Around the World
d. The Stability and Growth Pact
This session will be a lecture and based on handouts one and two.
Background Readings:
· Daban and others, 2003, Rules-Based Fiscal Policy in France, Germany,
Italy and Spain, IMF Occasional Paper no. 225
· Eichengreen, B. and C. Wyplosz, 1998, The Stability and Growth Pact:
More than a minor nuisance? Economic Policy
9. The SGP as a guard against
external Euro Area deficits
a. Casella, A., 2001, Tradable Deficit Permits: Efficient Implementation of
the Stability Pact in the European Monetary Union, in Brunila, Buti and Franco
(eds.), The Stability and Growth Pact – the Architecture and Fiscal Policy
in EMU, Baringstoke, Palgrave.
Presentation of Casella (2001)
by Leonardo Iebraa
Discussant: Yannick Vennes
10. Rule based reform proposals
of the SGP
a. Buti, Marco, Sylvester Eijffinger and Daniele Franco, 2003, Revisiting EMU’s
Stability and Growth Pact: A Pragmatic Way Forward, Oxford Review of Economic
Policy vol. 19(1).
b. Blanchard and Giavazzi, 2004, Improving the Stability and Growth Pact Through
Proper Accounting of Public Investment, CEPR Discussion Paper No. 4220
Presentation of Buti and others
(2003) by Roland Spichiger
Discussant: John Owens
Links: Info on the March reform of the Stability and Growth Pact. Here is a related article. And here is a press release from the Commission on the reforms.
11. Institutional Reform Proposals
of the SGP
a. Wyplosz, Charles, 2002, Fiscal Policy: Institutions vs. Rules, CEPR Discussion
Paper No. 3238
Roubini and Setzer's China Report, March 2005.
Nouriel Roubini's Global Macro Page
Nouriel Roubini's Global Economics Blog