University of Dublin

Trinity College

Senior Sophister

INTERNATIONAL ECONOMICS
EC4100

2015-2016
Hilary Term

Dr. Selen Sarisoy Guerin

e-mail: ssarisoy@tcd.ie

Office hours: Wednesday 10:30-11:30, Arts Building Rm 3021.

This part of the course introduces several important concepts and topics in
international macroeconomics both from a theoretical and empirical aspect. Given
the current state of the global economy, we are provided by ample examples that
support theory and puzzles that contradict them. Hence the general learning
outcome of this course should be that you not only have a well-grounded
understanding of theories in international macroeconomics but also be familiar with
empirical academic evidence. The first part of this course will cover the accounting
framework of balance of payments of a country, the determinants of the external
wealth of a nation, the drivers of international capital flows, and costs and benefits
of financial globalization. The second part will focus on determinants of exchange
rates in the short and long-run, macroeconomic policies under different types of
exchange rates regimes and exchange rates crisis. The final part will bring both parts
together.

Main text:
The core textbook is Robert C. Feenstra and Alan Taylor, International Economics,
Second Edition (2012) by (Worth Publishers). The lectures will cover Chp. 12- 22 of
Feenstra and Taylor as well as additional reading as indicated below (* indicates
required readings):
Lecture 1: Balance of Payments 1: International Accounts and External
Wealth of Nations

Feenstra and Taylor, International Economics, Chp. 16

*Felstein M. and Horioka, C (1980) Domestic Saving and International Capital Flow,
The Economic Journal vol. 90 no 358.

*Lane, Philip and Gian Maria Milesi-Ferretti (2006) The external wealth of nations
mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004,
IMF Working Paper no 06/69.

Lecture 2: Balance of Payments 2: International Capital Flows and Costs

and Benefits of Financial Globalization

Feenstra and Taylor, International Economics, Chp 17

*Lucas, R. (1990) Why doesn’t capital flow from rich to poor countries?, American
Economic Review, May 1990.

*Alfaro, L., Kalemli_Ozcan Sebnem and V. Volosovych (2005) Why doesn’t capital
flow from rich to poor countries? An empirical Investigation,

Lecture 3: Introduction to Exchange Rates

Feenstra and Taylor, International Economics, Chp 13

* Iversen, T. and D. Soskice (2010) Real Exchange Rates and Competitiveness: The
Political Economy of Skill Formation, Wage Compression and Electoral Systems,
American Political Science Review, Vol 104, no 3.

Lecture 4: Exchange Rate Determination: The Long-run

Feenstra and Taylor, International Economics, Chp 14

* Alan Taylor and Mark Taylor (2004) “The Purchasing power parity debate” Journal
of Economic Perspectives, 8. 135-158.

* David E. Rapach and Mark E. Wohar (2002) Testing the monetary model of
exchange rate determination: new evidence from a century of data, Journal of
International Economics, 58 (2), 359-385.
Lecture 5 Exchange Rate Determination: The Short-run

Feenstra and Taylor, International Economics, Chp 15

*Rogoff, Kenneth, (2002) Dornbusch’s Overshooting Model After 25 years, 2nd

Annual IMF Research Conference Mundell-Fleming Lecture.

*Mussa, M. (1984) The Theory of Exchange Rate Determination, eds. Bilson and
Marston, Exchange Rate Theory and Practice, University Chicago Press.

Lecture 6: Balance of Payments, Exchange Rates and Macroeconomic

Policies

Feenstra and Taylor, International Economics, Chp 18

*Mundell, R. (1968) Capital Mobility and Stabilization Policy under Fixed and Flexible
Exchange Rates, International Economics, New York MacMillan pp 250-271.

*Chatterjee and Mursagulov (2012) Fiscal Policy and The Real Exchange Rate, IMF
working paper series, no wp/12/52.

Lecture 7: International Monetary Experience

Feenstra and Taylor, International Economics, Chp 19

*Hausmann, R. Panizza, U. and E. Stein (2001) Why do countries float the way they
float? Journal of Development Economics, 66(2) 387-414.

*Meissner, C. and N. Oomes (2006) Why do countries peg the way they peg? The
determinants of anchor currency choice, Cambridge Working Papers in Economics
0643.

Lecture 8: Exchange Rate Crisis

Feenstra and Taylor, International Economics, Chp 20

*Ghosh, A. Ostry, J. and Qureshi (2014) Exchange Rate Management and Crisis
Susceptibility: A reassessment, IMF Working Paper no 1411.

*Kaminsky, G. Mati, A. and Choueiri, N. (2009) Thirty Years of Currency Crisis in

Argentina : External Shocks or Domestic Fragility, IMF Working Paper .
Lecture 9: The Euro

Feenstra and Taylor, International Economics, Chp 21

*Mody and Sandri (2012) The eurozone crisis: how banks and sovereigns came to be
joined at the hip, The Economic Policy.

* Lane, P. (2012) The European Sovereign Debt Crisis, Journal of Economic

Perspectives, 26(3), 49-68.

Lecture 10: The Global Financial Crisis

Feenstra and Taylor, International Economics, Chp.22

*Reinhart and Rogoff (2011) From Financial Crash to Debt Crisis, American Economic
Review, 101, 1676-1706.

*Obstfeld and Rogoff, (2009) Global Imbalances and the Financial Crisis: Products of
Common Causes, http://eml.berkeley.edu/~obstfeld/santabarbara.pdf.

Additional Recommended Reading:

Silvia Merler and Jean Pisani-Ferry, Sudden Stops in the Euro Area, Bruegel Policy
Contribution 2012/06.

Milesi-Ferretti and Razin (1997) Sharp Reductions in Current Account Deficits: An

Empirical Analysis, IMF Working Paper no 168.

IMF, (2008) How the IMF helps to resolve balance of payments difficulties, Fact
Sheet. https://www.imf.org/external/np/exr/facts/crises.htm

Agenor, Pierre-Richard (2003) Benefits and Costs of Financial Integration: Theory and
Facts, The World Economy, vol 26. Issue 8.

Krugman, P. (2000) Firesale FDI, Capital Flows and the Emerging Economies: Theory
Evidence and Controversies, ed. Edwards, S., University Chicago Press.

Michael Devereux and Makoto Saito (2006) A portfolio theory of International

Capital Flows, IIIS Discussion Papers no 124.

Cedric Tille and Eric van Wincoop, 2007, International Capital Flows, Federal Reserve
Bank of New York Staff Reports, no 280.

Bems, R., R. Johnson and K-M Yi (2012) The Great Trade Collapse, NBER Working
Paper No. 18632.
Prasad, E., et al (2006) Patterns of International Capital Flows, IMF working paper
September.

World Bank (2011) International Capital Flows: What actually happened in 2010?,
http://data.worldbank.org/news/international-capital-flows-gdf2012

Felstein, M. International Capital Flows,

http://www.nber.org/feldstein/woodstock_intro.html.

Menzie D. Chinna, Eswar S. Prasad (2002) Medium-term determinants of current

accounts in industrial and developing countries: an empirical exploration, Journal of
International Economics, 47-76.

BIS (2009) Capital flows and emerging market economies, CGFS papers no 33.

Block, B. and K. Forbes (2004) Capital Flows to Emerging Markets: The Myths and
Realities, Federal Reserve Bank of Dallas.
http://web.mit.edu/~kjforbes/www/Shorter%20Articles/CapitalFlowsToEmergingMa
rkets-Myths%26Realities.pdf

Alfaro, L. Kalemli-OZcan Sebnem and V. Volosovych (2006) Capital Flows in a

Globalized World: The Role of Policies and Institutions,

Bernanke, Ben (2015) Why are interest rates so low, part 3: The global savings glut,
Ben Bernanke’s Blog, http://www.brookings.edu/blogs/ben-
bernanke/posts/2015/04/01-why-interest-rates-low-global-savings-glut.

Milesi_ferretti, G.M. (2008) Fundamentals at Odds? The US Current Account Deficit

and the Dollar, IMF Working Paper no WP/08/260.

Meissner, C. M. (2005) A new world order: Explaining the International Diffusion of

the Gold Standard, 1870-1913, Journal of International Economics, 66(2), 385-406.

Krugman, Paul, (1979) A Model of Balance of Payments Crisis, Journal of Money,

Credit and Banking, vol 11, no 3.

Blanchard, Olivier and G.M. Milesi_Ferretti (2011) (Why) Should Current Account
Balances be reduced? IMF Staff Discussion Note, March.

Park and Estrada (2009) Are Developing Asia’s Foreign Exchange Reserves Excessive?
An Empirical Examination, ADB Economic Working Paper Series, no 170.
Teaching and Assessment

The course is going to consist of 2 lectures a week and a tutorial every two weeks.

The lectures will take place on Fridays 12am-14pm in Arts Building Rm 3074 and the
tutorial will be on Wednesdays between 9-10am in Arts Building Rm 3074.

The tutorials will start in week 4 (February 10th) and the class will be split into two
groups that will meet alternate weeks. The tutorials will cover sets of questions that
will be communicated in advance. Students are expected to come to tutorials
prepared to answer the questions.

Students will be assessed based on an essay assignment worth 10% of the final grade
and the Trinity term exam worth 40% of their overall grade for the course.

Assignment

The assignment should be typed double-spaced, using font 12 and be at maximum

15 pages including references. Each assignment should have a cover page including:
title of the assignment, the name of the author student number, date, an abstract
(max. 100 words) and 3-4 keywords. The essay assignments will be due by noon April
8th. You will have to submit your essay both on turnitin.com and leave a hard copy in
the Department of Economics. Late assignments will be punished unless prior
permission is obtained.

Details on the assignment will be discussed in class. In brief, the assignments should
go beyond the material covered in class and answer one of the following questions:

1) Are current account deficits bad for a country? Discuss.

2) What are the costs and benefits of openness to financial globalization?
3) What role did the euro play in the recent crisis? Discuss critically.
4) How can you explain the persistence of price differentials in the eurozone?
5) Survey academic literature (theoretical and empirical) on the reasons behind
the Great Recession.

You can refer to additional reading suggested for your assignments.