PA 854: Macroeconomic Policy and International Financial Regulation

Instructor
Professor Menzie Chinn
Office Hours: MW 4-5
7418 Social Sciences
Tel: (608) 262-7397
email: mchinn@lafollette.wisc.edu
Home Page

Course Syllabus

This course surveys international macroeconomics, with special reference to international monetary policy and international financial market architecture. Topics include the structure of international financial markets; the role of central banks; exchange-rate systems; the determination of balance of payments and exchange rates; macroeconomics of open economies; policy analysis for open economies; policy coordination; the International Monetary Fund; and financial crises. The aim of this course is to provide an analytical background for those who plan to go into government service, international organizations and agencies, businesses involved in the global economy, nongovernmental organizations with international foci, and consulting firms analyzing international policy issues.

The textbook is Caves, Frankel and Jones, World Trade and Payments 10th Edition, available at the University Bookstore. Additional assigned readings will be available on the Web (via links on this website).

Important Dates

• Midterm 1: March 7
• Midterm 2: April 23
• Term paper due: May 11.

Course Materials and Sources of Economic Information

Downloadable Course Materials

• "Lessons of the 1930s"There could be trouble ahead," Economist Dec. 10, 2011.
• PA854 Spring 2011 Website
• Lecture 1 powerpoint of 1/23
• Lecture 2 powerpoint of 1/25
• Notes on Exchange Rate Determination, Devaluation and the Elasticities Approach
• Notes on the National Saving-Investment Identity, and the Keynesian Model of Equilibrium and the Trade Balance
• Notes on the Two Country Model and the Keynesian Multiplier
• Problem Set 1 due 2/15
• Spring 2011 Midterm 1
• Expenditure Switching and Reduction
• IS-LM
• Problem Set 1 Answer Key
• Problem Set 2 (due 3/5)
• Aggregate Demand-Aggregate Supply
• IS-LM-TB=0
• IS-LM-BP=0 under Fixed Exchange Rates
• Term Paper Assignment
• IS-LM-BP=0 under Floating Exchange Rates
• Problem Set 2 Answers (due 3/5)
• Midterm 1 Answer Key
• Midterm 1 Statistics and Grading Curve
• IS-LM-BP=0 under Floating Exchange Rates with Expected Depreciation
• Balance sheet for Treasury, Fed, Banks, Private Nonfinancial Sectors
• The Financial and Economic Crisis Interpeted in the Context of a CC-LM Model
• Problem Set 3 (due 3/26)
• Problem Set 3 Answers (due 3/26)
• Term Paper Assignment
• Notes on Purchasing Power Parity
• Notes on Interest Rate Parity
• Notes on Exchange Rate Modeling
• Asset Pricing and Bubbles, and the Efficient Market Hypothesis
• Handout on the Trilemma
• Spring 2011 Midterm 2
• Problem Set 4 (due 4/30)
• Midterm 2 Answer Key
• Midterm 2 Statistics and Grading Curve
• Problem Set 4 Answers (due 3/26)
• Emerging Market Issues (due 3/26)

Required Readings

1. IMF, World Economic Outlook, October 2011 Chapter 1.
2. White House Council of Economic Advisers, The Economic Report of the President, 2012, Chapter 1.
3. TriennialCentral Bank Survey Report on global foreign exchange market activity in 2010 (Basel: BIS, December).
4. M. Chinn, 2004, “Incomes, Exchange rates and the U.S. trade deficit, once again,” International Finance 7(3): 451-469.
5. M. Pakko and P. Pollard, 2003, “Burgernomics: a big Mac guide to purchasing power parity,” Federal Reserve Bank of St. Louis Review 85(6): 9-28.
6. K. Herve, 2010, “The OECD's New Global Model,” Economics Department Working Paper No. 368 (Paris: OECD, December).
7. M. Brunnermeier, forthcoming, “Deciphering the Liquicity and Credit Crunch of 2007-08,” Journal of Economic Perspectives.
8. M. Chinn, 2006, "The Rehabilitation of Interest Rate Parity in the Floating Rate Era: Longer Horizons, Alternative Expectations, and Emerging Markets," JIMF 25.
9. M. Hutchison, 2003, “Is official foreign exchange intervention effective,” FRBSF Economic Letter 2003-20 (July 18).
10. J. Frankel, 2003, “Experience of and lessons from exchange rate regimes in emerging economies,” mimeo (Cambridge: Harvard University, September).
11. Aizenman, Chinn and Ito, "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Paper No. 14533. [pdf].
12. "A Faith-based Initiative: Do We Really Know that a Flexible Exchange Rate Regime Facilitates Current Account Adjustment," mimeo [PDF].

News Reports and Additional Optional Readings

• D. Leonhardt, "Coming Soon: ‘Taxmageddon’," NYTimes, 15 April 2012.
• "Weak China GDP growth no signal for fresh stimulus," Reuters (April 13, 2012)
• "Fed doves and hawks show their feathers," Reuters
• Casselman and Meckle, "Jobs Recovery Gains Momentum," WSJ (March 10-11, 2012)
• Herve, et al., 2010, "The OECD's New Global Model," OECD Economics Department Working Paper No. 768.
• Robert McNally, "Managing Oil Market Disruption in a Confrontation with Iran," Council on Foreign Relations brief (January 2012).
• "Iran warns currency speculators as rial continues to fall," WaPo, Feb. 1, 2012.
• CBO, The Budget and Economic Outlook (January 2012), and additional materials.
• IMF, "World Economic Outlook Update: Global Recovery Stalls, Downside Risks Intensify," January 24, 2012.
• Summers memo to President-Elect Obama on Economic Work (12/15/08)
• Macroeconomic Advisers’ "The Economic Effects of the Ryan Plan: Assuming the Answer?" Macro Focus, APril 13, 2011
• Institute for New Economic Thinking conference agenda
• IMF Conference on Macro after the Crisis
• F. Norris, "Inexact science of the Jobless Numbers," NYT (Feb. 4, 2011)
• BIS, Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2010 (Nov. 2010)
• Aizenman, Chinn and Ito, "The 'Impossible Trinity' Hypothesis in an Era of Global Imbalances: Measurement and Testing," forthcoming, JIMF.
• White House, Budget of the United States, FY2012: Analytical Perspectives.
• Steindel, "Chain-weighting: The New Approach to Measuring GDP," NY Fed Current Issues (Dec. 1995).
• Summary and Chapter 2 from CBO, CBO, The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (January 2010).
• P. Swagel, 2009, "The Financial Crisis: An Inside View," paper presented at the Brookings Panel on Economic Activity, March 2009
• Mathias Dewatripont, Xavier Freixas and Richard Portes, Macroeconomic Stability and Financial Regulation: Key Issues for the G20 (CEPR, March 2009).

News Sources

• Financial Times online
• New York Times online
• Washington Post online
• Wall Street Journal online
• BBC news online
• Reuters online
• Bloomberg online
• The Economist

Other

• PA974-001 (Fall 2010): Monetary Policy and Financial Regulation in a Globalized Economy
• PA974-001 (Fall 2009): Policy Responses to the Great Recession
• Menzie Chinn and Jeffry Frieden, The Lost Decades: The Making of America’s Debt Crisis and the Long Recovery (W.W. Norton)

Weblogs

• Econbrowser (UCSD and UW-Madison) blog
• Real Time Economic Issues Watch from Peterson Institute for International Economics.
• WSJ RealTime Economics
• SF Fed "FedViews"
• RGE Monitor
• Global Economy Matters blog
• Greg Mankiw's blog (Harvard)
• Brad DeLong (UC Berkeley) blog
• Morgan Stanley Global Economic Forum Commentary on international macro issues.
• Baseline Scenario Blog
• Council of Economic Advisers Blog [US Government].

Economics and Economic Policy Links

• Resources for Economists Extensive links to data sources, working papers and organizations.
• American Enterprise Institute Right of center think tank.
• Brookings Institution Moderate/left of center think tank.
• Peter G. Peterson Institute for International Economics
• Institute for International Finance Think tank associated with international banks.
• Economic Policy Institute Left of center labor-oriented think tank.

International Organizations

• International Monetary Fund
• World Bank
• Bank for International Settlements The central banks' central bank.
• Organization for Economic Cooperation and Development Developed country research organization.

U.S. Government Agencies

• White House Council of Economic Advisers
• U.S. Department of the Treasury
• Congressional Budget Office Nonpartisan analytical agency of the Congress.
• Federal Reserve Board

Current and Historical Data

• Note: IMF, International Financial Statistics, and World Bank, World Development Indicators, available from DISC.
• St. Louis Fed economic database Thousands of time series on economic activity, in an easily downloadable form.
• Economic Indicators Many Department of Commerce economic series, all in one place.
• White House Economic Briefing Room Contains current economic data.
• Economic Indicators Publication of CEA and Congressional Joint Economic Committee contains recent economic data.
• Bureau of Economic Analysis, Dept. of Commerce Data on GDP and components (the national income and product accounts) as well as other macroeconomic data.
• Bureau of the Census, Dept. of Commerce Data on the characteristics of the US population as well as of US firms.
• Bureau of Labor Statistics, Dept. of Labor Data on wages, prices, productivity, and employment and unemployment rates.
• Energy Information Agency, Dept. of Energy Data on on energy (electricity, gas, petroleum) production, consumption and prices.
• Statistical Abstract of the US A compilation of statistics about the US, from government and nongovernment sources.
• Bank for International settlements Effective Exchange Rate Indices.
• Economic Report of the President, various years. The back portion of this annual publication contains about 70 tables of government economic data.
• NBER Data Specialized economic databases created by economists associated with the National Bureau of Economic Research.
• NBER listing of economic releases Compendium of links to economic releases, and archived releases.
• Pacific Exchange Rate Service.
• Federal Reserve Board data Monetary, financial and output data collected by the Nation's central bank.
• Penn World Tables Annual GDP and other data for over a hundred countries, expressed in dollars, after adjusting for differing price levels.