International Monetary Theory and Policy I 2003-2004

General Exam: International Monetary Theory and Policy. A two-course sequence is offered on the material to be co ered by this !eneral exam. The sequence consists of Economics ""# $fall% and ""& $s'rin!%. Each of these courses may also be ta(en indi idually as an electi e. The sequence is mainly desi!ned for !raduate students wishin! to s'eciali)e in International *inance and+or International Monetary Economics.

Economics ""# $*all ,--&%: Paul .ru!man and /0l1ne 2ey. This course de elo's core models of international finance and o'en-economy macroeconomics3 and sur eys selected current research to'ics in the field. To'ics treated include: basic models of the o'en economy4 the intertem'oral a''roach to the current account4 the determination of real exchan!e rates and 'urchasin! 'ower 'arity4 international 5APM and unco ered interest rate 'arity4 international ris( sharin! and ca'ital flows3 home bias4 financial crises3 s'eculati e attac(s and sudden sto's.

Economics ""& $6'rin! ,--"%: 7ars 6 ensson T8A

ECON553 Fall 2004 Paul Krug an and !"l#ne $ey

%rading Policy Midterm Exam $&-9 of !rade%. The date for the midterm is :ctober ,-th. There will be one 'roblem set before to 're'are you for the midterm. *inal exam $;-9 of !rade%. The final will ta(e 'lace in <anuary. Cour&e Material The textboo( for the course is *oundations of International Macroeconomics3 by Maurice :bstfeld and .enneth 2o!off3 MIT Press3 :ctober =>>;. :ther useful references are ?International Macroeconomics and *inance: Theory and Em'irical Methods? by @elson Mar(3 8lac(well Publisher3 6e'tember ,--=3 ?The Economics of exchan!e 2ates? by 7ucio 6arno and Mar( Taylor3 5ambrid!e Ani ersity Press3 ,--#. $eading 'i&t The followin! readin! list !i es a !uide to the material that will be co ered in the course. Most articles are a ailable on-line.

The &e&&ion& taught (y Paul Krug an are denoted (y )PK* and the &e&&ion& taught (y !"l#ne $ey (y )!$*+

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Introduction to o.en econo y econo ic& )PK* )/e.te (er ,30 ,50 20*

2- Purcha&ing Po1er Parity and 'a1 o2 One Price+ )!$* )/e.te (er 22* 2o!off .. ?The Purchasin! Power Parity Pu))le?3 Journal of Economic Literature Bol. #&3 @o. ,. $<un.3 =>>;%3 ''. ;&C-;;D. En!el 5. ?Accountin! for A6 2eal Exchan!e 2ate 5han!es,? Journal of Political Economy =-C$#%3 <une =>>>3 'a!es "-C-#D. Imbs <.3 Mumta) /.3 2a n M. and /. 2ey3 EPPP 6tri(es 8ac(: A!!re!ation and the 2eal Exchan!e 2ateF3 forthcomin! Quarterly Journal of Economics3 ,--" at www.'rinceton.edu+Ghrey. Taylor A. and M. Taylor3 EThe Purchasin! Power Parity HebateF3 Journal of Economic Perspectives forthcomin!3 @8E2 IP =-;-C. Law of one price: 5rucini and 6hintani: EPersistence in 7aw of one 'rice de iations: e idence from micro dataF3 , IP @o -,-I,,3 Banderbilt Ani ersity3 ,--,. 5rucini M.3 Jachariadis and 5. Telmer: EAnderstandin! Euro'ean 2eal Exchan!e 2ates:=>C"=>>-F3 IP @o -=-I,-3 Banderbilt Ani ersity3 ,--=. Iei3 6han <in and Ha id 5. Parsley: EA 'rism into the PPP Pu))le: The Micro-*oundations of 8i! Mac 2eal Exchan!e 2atesF3 @8E2 IP =--C&3 ,--#. 3- Interte .oral a..roach to the current account )!$* )/e.te (er 230 240 Octo(er 4* :bstfeld -2o!off cha'ters = and ,.

:bstfeld M. and .. 2o!off3 ?The Intertem'oral A''roach to the 5urrent Account?3 in /andboo( of International Economics3 Gene Grossman and .en 2o!off3 ed3 @orth /olland3 =>>". Glic( 2. and .. 2o!off3 EGlobal ersus 5ountry-6'ecific Producti ity 6hoc(s and the 5urrent AccountF3 Journal of Monetary Economics3 =>>"3 #" $=%3 =">K>,.F 8er!in P. and 6. 6heffrin3 EInterest 2ates3 Exchan!e 2ates and Present Balue Models of the 5urrent AccountF3 The Economic Journal ==- $&;#%3 A'ril ,---3 "#"-""D. .raay3 A. and <. Bentura3 ?5urrent Accounts in Hebtor and 5reditor 5ountries?3 Quarterly Journal of Economics3 @o ember ,---. Bentura <. : EA Portfolio Biew of the A.6. 5urrent Account Heficit3F in Brookings Papers on Economic Activity ,--=3 ''. ,&=K"#. Mercereau3 8. : EThe 2ole of 6toc( Mar(ets in 5urrent Account Hynamics: a Time 6eries A''roachF3 8E Press3 Topics in Macroeconomics3 ,--#3 Bol #3 Issue =. Gourinchas P.:. and /. 2ey: EInternational *inancial AdLustmentF3 @8E2 IP3 ,--&3 at www.'rinceton.edu+Ghrey. :bstfeld M. and .. 2o!off: EThe Ansustainable A6 5urrent Account Position 2e isitedF3 <uly ,--& at htt':++emlab.ber(eley.edu+users+obstfeld+ . .ru!man P.: ?/as the adLustment 'rocess wor(edM?3 :ct =>>=3 Policy analyses in international economics #&3 Institute for International Economics. 2a)in3 A.and 7. 6 ensson3 EThe Terms of Trade and the 5urrent Account: The /arber!er-7aursen-Met)ler Effect3F Journal of Political Economy3 *ebruary =>D#3 >= $=%3 >CK =,". 4- International 2inancial )Octo(er 70 ,,0 ,30 ,8* ar5et& and ri&5 &haring+ Financial glo(ali6ation+ )!$*

International financial markets and risk sharing. :bstfeld-2o!off3 cha'ter ". 7ewis ..3 ?International /ome 8ias in International *inance and 8usiness 5ycles?3 @8E2 IP N;#"=3 <anuary =>>D3 or with the title ?Tryin! to Ex'lain /ome 8ias in Equities and 5onsum'tion? Journal of Economic Literature #C3 <une =>>>3 "C=-;-D. 8ac(us H. P. .ehoe and *. .ydland3 EInternational 2eal 8usiness 5yclesF3 Journal of Political Economy3 =-- $&% Au!ust3 C&"-CC". 5ole /. and M. :bstfeld: ? 5ommodity Trade and International 2is( 6harin!: /ow much do *inancial Mar(ets MatterM?, Journal of Monetary Economics ,D $Au!ust%: #-,&3 =>>=. :bstfeld3 M3 ?2is(-ta(in!3 !lobal di ersification3 and !rowth?3 American Economic Revie 3 D&3 ''. =#=--,>3 =>>&. Ban Iincoo': ?/ow 8i! are Potential Gains from International 2is( 6harin!M?3 Journal of !nternational Economics &C3 =>>>3 =->-=#". :bstfeld M. and .. 2o!off3 ?The 6ix MaLor Pu))les in International Macroeconomics: Is There a 5ommon 5auseM?3 "BER Macro Annuals #$$%. Martin P. and /. 2ey: ?*inancial 6u'er-Mar(ets: 6i)e matters for asset trade?3 ,--,3 forthcomin! Journal of !nternational Economics htt':++www.'rinceton.edu+Ghrey+ Martin P. and /. 2ey: ?*inancial Inte!ration and Asset 2eturns?3 European Economic Revie I6:M issue, <une ,---3 $&&+C%3 '. =#,C-=#"-.

Financial globalization. Tesar 7. and I. Ierner3 ?/ome 8ias and /i!h Turno er &, Journal of !nternational Money an' (inance =& $Au!ust%: &;C->, =>>".

Portes 2. and /. 2ey3 ,--=: ?Heterminants of 5ross 8order Equity *lows?3 forthcomin! Journal of !nternational Economics3 at htt':++www.'rinceton.edu+Ghrey+ .ray3 A.3 7oay)a3 @.3 6er en3 7. and <. Bentura ?The Portfolio of @ations?3 @8E2 IP CC>" <uly ,---. 7ane P. and G. M. Milesi-*erretti3 ?The External Iealth of @ations: Measure of *orei!n Assets and 7iabilities for Industrial and He elo'in! 5ountries3? International Monetary *und Ior(in! Pa'er IP+>>+=="3 Au!ust =>>>. 7ane P. and G. M. Milesi-*erretti3 EInternational *inancial Inte!rationF 5EP2 HP #C;>. /eathcote <. and *. Perri3 EThe International Hi ersification Pu))le is not as 8ad as you Thin(F3 mimeo3 ,--&. International Monetary *und: Prasad E. 2o!off ..3 Iei 6.<. and .ose A.: EEffects of *inancial Globali)ation on He elo'in! 5ountries: 6ome Em'irical E idenceF3 March ,--#. Gourinchas P.:. and :. <eanne: EThe Elusi e Gains of International *inancial Inte!rationF3 ,--#3 5EP2 HP #>-,.

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3- /.eculati:e attac5& and 2inancial cri&e& under in2or ation heterogeneity+ )!$* )No:e (er 220 24* Morris 6. and /.6. 6hin3 EAnique Equilibrium in a Model of 6elf-*ulfillin! 5urrency Attac(sF3 American Economic Revie DD3 "DC->C3 =>>D. Morris 6. and /.6. 6hin3 E2ethin(in! Multi'le Equilibria in MacroeconomicsF3 "BER Macro Annual3 ,---. 8roner *.3 EHiscrete He aluations and Multi'le Equilibria in a *irst Generation Model of 5urrency 5rises3F mimeo Ani ersity of Maryland3 ,--&. 5hamley 5.3 EHynamic 6'eculati e Attac(sF3 American Economic Revie , ,--#. An!eletos G.M. and I. Iernin!3 EInformation A!!re!ation and Equilibrium Multi'licityF3 mimeo MIT3 ,--&.

8- Financial cri&e&+ /.eculati:e attac5&+ /o:ereign de(t cri&e&+ )PK* )No:e (er 240 ;ece (er ,*

4- /udden /to.&+ )!$* );ece (er 70 8*+ Mendo)a E. and 6mith: Mar!in 5alls3 Tradin! 5ost3 and Asset Prices in Emer!in! Mar(ets: The *inancial Mechanics of the O6udden 6to'O Phenomena at htt':++www.bsos.umd.edu+econ+mendo)a+ Arellano 5. and E. Mendo)a3 E5redit *rictions and O6udden 6to'sO in 6mall :'en Economies: An Equilibrium 8usiness 5ycle *ramewor( for Emer!in! Mar(ets 5rises3F "BER )P ***-3 ,--,.

5al o 5.3 I)quierdo A. and 7-*. MeLia3 E:n the Em'irics of 6udden 6to's: The 2ele ance of 8alance-6heet EffectsF3 "BER )P %$+#$3 ,--&. Martin P. and /. 2ey: E*inancial Globali)ation and Emer!in! Mar(ets: Iith or without 5rashMF3 re ised ,--& at www.'rinceton.edu+Ghrey Tornell A. and M. 6chneider: E8alance 6heet Effects3 8ailout Guarantees and *inancial 5risesF3 forthcomin! Revie of Economic ,tu'ies.