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Outline and syllabus
Papers marked with an asterisk are intended for student presentations)
Introductory Lectures: Underlying
Theoretical Framework and Stylized Facts on the Global Economy (3-4 Sessions)
Do handouts and make the students use the theoretical framework in their
presentations and discussions.
1. Theory:
A . Balance of Payments Accounts, identities, budget constraints, and
relations between the key variables.
Overview of BoP Accounts; Definition of the net foreign asset ratio; Changes
to the value of net foreign assets due to exchange rate changes (trade
balance and valuation effects); Sustainability of Net Foreign Assets (debt
sustainability)
Lecture notes linked here.
Students should be familiar with Burda and Wyplosz chapters 2 and 3.
B. Current Account Determination 1: The Elasticities and the Absorption
approaches. Based on lecture
notes.
C. Current Account Determination 2: The Mundel Flemming Model
-The effect of fiscal policy on the current account balance
-The root cause of a CA deficit and implications for CA adjustment and
the exchange rate
-Fixed exchange rates and sterilization of capital inflows.
Lecture notes linked here
(graphs missing here, but handed out in class)
D. Current Account Determination 3: The Intertemporal Approach
to the Current Account. The Stages of Current Account and Why current
account deficits are not necessarily bad.
Lecture notes on the intertemporal
approach here, and graphs here.
The class is based on Obsfeld and Rogoff, International Macroeconomics,
Chapters 1 and 2.
2. Stylized Facts:
Current account, investment position (gross and net foreign asset holdings),
exchange rate developments, fiscal developments etc. in history for the
US, China and other countries.
Readings: First section of Obstfeld
and Rogoff (2005) and lecture notes or handout.
Topic 1. Current Account Determination
and the US Current Account Deficit (3-4 sessions)
Topics:
1. Current account adjustment and the exchange rate: How large a depreciation
of the USD is needed?
Theory:
-*Mussa (2005) (copies can be picked up outside my office, or had in class
on Wednesday 5th April)
- Obstfeld and Rogoff
(2005)
- Blanchard, Giavazzi and
Sa (2005)
Empirics:
-*Croke,
Kamin and Leduc (2005)
-Freund (2000) (http://www.federalreserve.gov/pubs/ifdp/2000/692/ifdp692.pdf)
-Freund and Warnock (2005) (http://papers.nber.org/papers/w11823.pdf)
-Edwards (2005) (http://papers.nber.org/papers/w11669.pdf)
2. Current account adjustment and financial adjustment channel: Valuation
effects and the “exorbitant privilege” as explanations for
the developments in the US CA in recent years, and implications for the
future
-*Gourinchas
and Rey (2005b)
-*Lane and Milesi-Ferretti,
(2005), sections I-III.
-Tille (2003) (http://www.newyorkfed.org/research/current_issues/ci9-1.pdf).
A note on valuation effects on the US external asset position
-De Gregorio (2005): discussion of Gourinchas and Rey, 2005b. (http://www.nber.org/books/curracct/degregorio9-22-05comment.pdf)
-Gourinchas and Rey (2005a) (http://www.princeton.edu/%7Ehrey/ifa_2005.pdf)
on valuation effects on the US current account and external position
-Tille (2005a) (http://www.ny.frb.org/research/current_issues/ci11-12.pdf)
A note on the effect of the exorbitant privilege on the US current account
and implications for future US current account developments
-Tille (2005b) (http://www.ny.frb.org/research/staff_reports/sr237.pdf)
on how in theory, valuation effects might substantially smooth the adjustment
of the US current account
3. What External Imbalances? Unmeasured Exports of US knowledge as an
explanation for the US current ccount developments in recent years, and
implications for the future
-*Hausman and Sturzenegger, 2005, 2006, (non-technical
05 version; and technical
06 version)
-A critical voice: “Here
is what’s the matter with Dark Matter”, By Higgins, Klitgaard
and Tille, Jan 06.
Another “what imbalances?” view by Richard Cooper (www.ucd.ie/economic/staff/bwalsh/Cooper%20on%20deficit.doc)
Some background and complementary readings on the sustainability of the
US external position: Roubini and Setser (2004) (http://pages.stern.nyu.edu/%7Enroubini/papers/Roubini-Setser-US-External-Imbalances.pdf)
Roubini (2005) (http://www.rgemonitor.com/blog/roubini/91200/)
Topic 2. Currency arrangements
and reform in Emerging Asian countries, with a focus on China (3-4 sessions)
1. Overview of Currency Arrangements and Central Bank Asset Accumulation
in East Asia.
-*Genberg and coauthors (2005), Chapter 2 and 3. (handout)
Premium
sample from rgemonitor on China's reserve accumulation
2. Proponents of a RMB revaluation in the short term:
-*Morris Goldstein (2004,
2005)
-*Prasad,
Rumbaugh and Wang (2005)
Related: Menzie
Chinn's blog on "Is the Rmb undervalued?"
3. Arguments against an eminent RMB revaluation:
-*Mckinnon
and Schnabl (2003)
Related McKinnon writings:
(http://www.stanford.edu/~mckinnon/briefs/WSJopedrev.pdf)
(http://www.stanford.edu/~mckinnon/papers/Weekly_Economist_Oct_2005.pdf)
-*Dooley and coauthors (2003,
2005)
Related:
-Kuijs
and Wang (2006) on China's growth pattern
-Dani Rodrik on "What's so special about China's exports?
-Roubini
and Setser (2005)
4. Options for Future Currency Arrangements in East Asia:
-*Williamson
(2001) on the BBC
-*Genberg (2006) on sequencing
of reforms
Background and complementary reading on exchange rate regimes:
-Genberg and Coauthors (2005), chapter 5. (handout)
-Background
on creating a regional currency arragement in East Asia
-Frankel
(2003)
-A followup from
Williamson on future Asian currency arrangements
-Research supporting
the Williamson proposal
-McKinnon
on future Asian currency arrangements
Related and background readings:
- Cheung, Menzie and Jujii, 2005 give an overview of different mehods
to assess the valuation of the Renminbi.
- Funke and Rahn (2005) similarly estimate the equilibrium value of the
Renminbi.
- Roubini and Setzer 2004 and 2005
- On Monetary Policy
in China.
Topic 3. Fiscal rules and the
EMU’s Growth and Stability Pact (3-4 sessions)
1. Background
1. Stylized Facts on Debts and Deficits in EU countries.
Public Debts and Deficits are Unprecedented in History.
Readings: This session will be based on lecture notes.
2. Causes of the Deficit Bias
Normative models (Barro tax smoothing, Keynesian countercyclical policy),
Political economy models (Common pool, time inconsistency of preferences),
other? Based on lecture Notes
and Slides
2. SGP and Alternatives
-*Eichengreen
and Wyplosz (1998): The design of the SGP and why (if) we need it
(). Lecture notes Here.
Related: Wyplosz (2006),
Section 3.
Info on the March
2005 reform of the Stability and Growth Pact. Here
is a related article. And here
is a press release from the Commission on the reforms.
-*Buiter
and Siebert (2005) on why market disciplining does not work in the
EMU
-*Blanchard
and Giavazzi (2004) on the golden rule
-*Wyplosz
(2002) in national fiscal councils
Topic 4. Policy Coordination
and Global Imbalances (1-2 sessions)
1. Why is policy coordination desirable?
The theory of policy coordination, externalities and the prisoner’s
dilemma. Readings: Meyer and others (2002) (http://www.federalreserve.gov/pubs/ifdp/2002/723/ifdp723.pdf)
2. International policy coordination in the current global macroeconomic
climate.
- *Genberg and Coauthors, 2005, Chapter 4: (not available online, will
be handed out in class)
- *Roubini and Setser (2004)
- William Cline:
The case for a new Plaza Accord. IIE Policy Brief December 2005
Related readings:
-Article
from The Economist on coordination, April 2006
Related:
Interview with Professor Alexandre Swoboda on global imbalances in "Central
Banking" last year.
References, further reading
and background literature
· Blanchard, Olivier, Francesco Giavazzi and Filipa Sa, 2005,
The U.S. Current Account and the Dollar, NBER Working Paper No. 11137
(http://www.nber.org/papers/W11137)
· Blanchard, Olivier and Francesco Giavazzi, 2004, Improving the
Stability and Growth Pact Through Proper Accounting of Public Investment,
CEPR Discussion Paper No. 4220 (http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=4220&action.x=8&action.y=6&action=ShowDP)
· Burda and Wyplosz, Macroeconomics, a European Text, Second Edition.
Textbook.
· Buiter, William and Anne Siebert, 2005, How the Eurosystem's
Treatment of Collateral in its Open Market Operations Weakens Fiscal Discipline
in the Eurozone (and what to do about it), CEPR Discussion Paper No. 5387
(http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=5387&action.x=12&action.y=6&action=ShowDP)
· Cheung, Yin-Wang, Menzie Chin and Eiji Fujii, 2005, Why the Renminbi
Might be Undervalued (But Probably Isn’t), Paper presented to conference
on External Imbalances and Adjustment in the Asia Pacific Region, Federal
Reserve Bank of San Fransisco, September 22-23.
· Croke, Hilary, Steven B. Kamin and Sylvain Leduc, 2005, Financial
Market Developments and Economic Activity during Current Account Adjustments
in Industrial Economies, International Financial Discussion Papers No.
827 (http://www.federalreserve.gov/pubs/ifdp/2005/827/ifdp827.pdf)
· De Gregorio, Jose, 2005, Global Imbalances and Exchange rate
Adjustment, Comment on Gourinchas and Rey (2005b), presented at NBER conference
on G7 Current Account Imbalances: Sustainability and Adjustment, June
1-2, 2005. (http://www.nber.org/books/curracct/degregorio9-22-05comment.pdf)
· 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 Paper 9971 (http://papers.nber.org/papers/w9971.pdf)
· 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 (http://papers.nber.org/papers/w10332.pdf)
· Dooley, Michael P., Folkerts-Landau, David and Garber, Peter,
2005, Direct Investment, Rising Real Wages and the Absorption of Excess
Labor in the Periphery. NBER Working Paper 10626 (http://papers.nber.org/papers/w10626.pdf)
· Edwards, Sebastian, 2005, The End of Large Current Account Deficits,
1970-2002: Are There Lessons for the Unites States? NBER Working Paper
11669 (http://papers.nber.org/papers/w11669.pdf)
· Eichengreen, B. and C. Wyplosz, 1998, The Stability and Growth
Pact: More than a minor nuisance? Economic Policy (http://www.blackwell-synergy.com/doi/pdf/10.1111/1468-0327.00029)
· Frankel, Jeffrey A., 2003, Experiences of, and Lessons from,
Exchange Rate Regimes in Emerging Economies, NBER Working Paper No. 10032
(http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN022208.pdf)
· Freund, Caroline, 2000, Current Account Adjustment in Industrialized
Countries, International Finance Discussion Paper no. 692, Board of Governors
of the Federal Reserve System. (http://www.federalreserve.gov/pubs/ifdp/2000/692/ifdp692.pdf)
· Freund, Caroline, and Warnock, 2005, Current Account Deficits
in Industrial Countries: The Bigger They Are, The Harder They Fall? NBER
Working Paper 11823 (http://papers.nber.org/papers/w11823.pdf)
· Funke, Michael and Jorg Rahn, 2005, Just how undervalued is the
Chinese Renminbi? The World Economy 28(4). (http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1467-9701.2005.00688.x)
· Genberg, Hans, 2006, Exchange Rate Arrangements and Financial
Integration in East Asia: On a Collision Course? Mimeo, HKMA
· Genberg, Hans, Robert McCauley, Yong Chul Park and Avinash Persaud,
2005, Official Reserves and Currency Management in Asia: Myth, Reality
and the Future, Geneva Reports on the World Economy 7, ICMB and CEPR
· Goldstein, Morris, 2005, Renminbi Controversies, Paper Prepared
for the Conference on Monetary Institutions and Economic Development,
Cato Institute, November 3. Washington DC. (http://www.iie.com/publications/papers/goldstein1205.pdf)
· Goldstein, Morris, 2004, Adjusting China’s Exchange Rate
Policies, paper presented at the IMF’s seminar on China’s
Foreign Exchange System, Dalian, China, May 26-27, 2004 (http://www.iie.com/publications/wp/wp04-1.pdf)
· Gourinchas, Pierre-Olivier and Hélène Rey, 2005a,
International Financial Adjustment. Working Paper, University of Princeton.
(http://www.princeton.edu/%7Ehrey/ifa_2005.pdf)
· Gourinchas, Pierre-Olivier and Hélène Rey, 2005b,
From World Banker to World Venture Capitalist: The US External Adjustment
and The Exorbitant Privilege, Working Paper, University of Princeton.
(http://www.princeton.edu/~hrey/exorbprivilegedec05.pdf)
· Hausmann, Ricardo and Federico Sturzenegger, 2006, Global Imbalances
or Bad Accounting? The Missing Dark Matter in the Wealth of Nations, CID
Working Paper 124, Harvard University (http://www.cid.harvard.edu/cidwp/pdf/124.pdf)
· Lane, Philip and GianMaria Milesi-Ferretti, 2005, A Global Perspective
on External Positions, NBER Working Papers 11589 (http://www.nber.org/papers/w11589.pdf)
· Mckinnon, Ronarld and Gunther Schnabl, 2003, China: A Stabilizing
of Deflationary Influence in East Asia? The Problem of Conflicted Virtue.
Mimeo (http://www.stanford.edu/~mckinnon/papers/China.pdf)
· McKinnon, Ronald, 2003, China’s exchange rate, Asian Wallstreet
Journal, 27th June. (http://www.stanford.edu/~mckinnon/briefs/WSJopedrev.pdf)
· 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. (http://www.federalreserve.gov/pubs/ifdp/2002/723/ifdp723.pdf)
· Mundel, Robert, 2003, Globalization and the RMB Exchange Rate,
presentation made at the Renmin University of China, Beijing, October
31.
· 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.
· Obstfeld, M. and K. Rogoff, 2004, The Unsustainable US Current
Account Position Revisited, NBER Working Paper no. 10869 (http://papers.nber.org/papers/w10869.pdf)
· Prasad, Eswar, Thomas Rumbaugh and Quing Wang, 2005, Putting
the Cart Before the Horses? Capital Account Liberalization and Exchange
Rate Flexibility in China, IMF Policy Discussion Paper 05/1 (http://www.imf.org/external/pubs/cat/longres.cfm?sk=17967.0)
· Roubini, Nouriel, 2005, A Contemporary Rasmonian Tale with Five
Interpretations. Blog posted 1 May 2005 on Roubini Global (http://www.rgemonitor.com/blog/roubini/91200/).
· Roubini, Nouriel and Brad Setser, 2004, The US as a Net Debter:
The Sustainability of the US External Imbalances. (http://pages.stern.nyu.edu/%7Enroubini/papers/Roubini-Setser-US-External-Imbalances.pdf)
· Roubini, Nouriel and Brad 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 (http://www.frbsf.org/economics/conferences/0502/Roubini.pdf)
· Tille, Cédric, 2003, The Impact of Exchange Rate Movements
on U.S. Foreign Debt, Federal Reserve Bank of New York Current Issues
in Economics and Finance, vol. 9, number 1, January 2003 (http://www.newyorkfed.org/research/current_issues/ci9-1.pdf)
· Tille, Cédric, 2005, The Income Implications of Rising
U.S. International Liabilities, With Matthew Higgins and Thomas Klitgaard,
Federal Reserve Bank of New York Current Issues in Economics and Finance,
vol. 11, number 12, December 2005 (http://www.ny.frb.org/research/current_issues/ci11-12.pdf)
· Tille, Cédric, 2005b, Financial Integration and the Wealth
Effect of Exchange Rate Fluctuations, Federal Reserve Bank of New York
Staff Report 226, October 2005 (http://www.ny.frb.org/research/staff_reports/sr237.pdf)
· Williamson, J., 2001, The Case for a Basket, Band and Crawl (BBC)
Regime for East Asia, in Future Direction for Monetary Policy in East
Asia, edited by Collignon, Pisany-Ferry and Park, London: Routledge (http://www.rba.gov.au/PublicationsAndResearch/Conferences/2001/williamson.pdf)
· Wyplosz, Charles, 2006, European Monetary Union: The Dark Sides
of a Major Success. Forthcoming, European Policy, April. (http://hei.unige.ch/~wyplosz/emu_EP.pdf)
· Wyplosz, Charles, 2002, Fiscal Policy: Institutions vs. Rules,
CEPR Discussion Paper No. 3238 (http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=3238&action.x=11&action.y=11&action=ShowDP)
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