BAEcon Economics and Philosophy / Course details

This one-semester course in international macroeconomics aims to provide students with the theoretical tools and empirical facts for understanding and thinking critically about macroeconomics in an international context. At the end of the term students will be able to interpret some key international macroeconomic policy issues, presented in policy-oriented publications and the popular press, using a new core theoretical framework where banks play a prominent role, and to understand how national macroeconomic policy challenges intersect with international economic issues – including financial globalization and the COVID-19 pandemic.

ECON20032 Prerequisites: ECON20031 AND (ECON10071 or ECON20071)

ECON20032 Prerequisites: C: ECON20031 and P: ECON10071 or C: ECON20071

This one-semester course in international macroeconomics aims to provide students with the theoretical tools and empirical facts for understanding and thinking critically about macroeconomics in an international context. At the end of the term students will be able to interpret some key international macroeconomic policy issues, presented in policy-oriented publications and the popular press, using a new core theoretical framework where banks play a prominent role, and to understand how national macroeconomic policy challenges intersect with international economic issues – including financial globalization and the COVID-19 pandemic.

 

Syllabus (9 weeks)

The course will focus on the following topics:

Topic 1. National Accounts and the Balance of Payments. [1 session]

Topic 2. Exchange Rates and the Foreign Exchange Market. [1 session]
 
Topic 3. Macroeconomic Policies in an Open Economy: The FF-GG-XX model. [4 sessions]
  
Topic 4. Financial Globalisation: Global Banking, Capital Flows and Macroeconomic Stability. [1 session]

Topic 5. International Coordination of Macroeconomic Policies. [2 sessions]

Tutorials (5 sessions)

Session 1. Overall structure of the FF-GG-XX model (Technical Manual, Section 1 and sub-Section 2.1).

Session 2. Derivation of the GG and XX curves and solution of the FF-GG-XX model under fixed exchange rates (Technical Manual, sub-Section 2.2). 

Session 3. Policy analysis and transmission of external shocks in the FF-GG-XX model under fixed exchange rates (Technical Manual, sub-Sections 2.3 to 2.5).

Session 4. Derivation of the FG and XX curves, and solution of the FF-GG-XX model under flexible exchange rates (Technical Manual, sub-Sections 3.1 and 3.2).

Session 5. Policy analysis and transmission of external shocks in the FF-GG-XX model under flexible exchange rates (Technical Manual, sub-Sections 3.3 and 3.4).

General References

Robert C. Feenstra, and Alan M. Taylor, International Macroeconomics, 4th ed., Macmillan. 2017. Hereafter FT.

Pr. P.-R. Agénor, “The FF-GG-XX Model for Macroeconomic Policy Analysis in an Open Economy,” Technical Manual, University of Manchester. Hereafter TM.

General References, by Topic
Topic 1: FT Chapter 5.

Topic 2: FT Chapters 2 and 4.

Topic 3: TM (mandatory reading, except for Section 4 and Appendix).

Topic 4: FT Chapter 6.

Topic 5: Technical Note (mandatory reading).

Synchronous activities (such as Lectures or Review and Q&A sessions, and tutorials), and guided self-study

At the end of this course students should be able to understand:

1.  Key concepts of national accounts in an open economy;

2.  The functioning of the foreign exchange market and the role of interest parity conditions in determining fluctuations in national currencies;

3. How fiscal and monetary policies affect macroeconomic aggregates, including output, prices, and the current account, as well as exchange rates, in an open economy where banks play a critical role in the financial system;

4. How the globalisation of banking affects the internatinal transmission of financial shocks;

5. The benefits of international coordination of macroeconomic policies in response to global shocks, including the COVID-19 pandemic.

(i) problem-solving skills;

(ii) skills of analysis, and the use of analytical models;

(iii) the evaluation and critical analysis of arguments, theories and policies;

(iv) understand and evaluate policy-oriented publications on international macroeconomic issues.

(i) independently locate and assess relevant literature, and to draw on these to develop understanding and to construct arguments.

(i) select and deploy relevant information;

(ii) communicate ideas and arguments in writing;

(iii) apply skills of analysis and interpretation;

(iv) manage time and work to deadlines;

(v) use ICT to locate, analyse, organise and communicate information (e.g. internet, on-line databases, search engines, library catalogues, spreadsheets, specialist programs, word processing and presentation software).
 

20% Mid-term exam, Week 5.

Online, multiple choice questions on taught material. 
Graded on 20 points (2 points per question).

80% Exam, June 2021.

48-hour open book exam (not timed). 2 out of 3 open questions to answer (maximum of 200 words), and a mathematical problem to solve, based on the FF-GG-XX model. Graded on 80 points (10 points per question, 60  points for the problem).

Overall grade on 100 points.

Piazza, drop-in sessions, virtual office hours.

Beyond the Classroom: Supplementary Readings

Topic 1

The US current account deficit and twin deficits
https://www.imf.org/external/pubs/ft/fandd/basics/current.htm

Topic 2

Monetary approach to exchange rate determination: see FT, Chap. 3.

Topic 3

The AA-DD-XX model: FT Chapter 7; see Supplementary Technical Material and simulation programme on Blackboard.

Topic 4

Banking without Borders
http://documents.worldbank.org/curated/en/983971510071016607/Global-financial-development-report-2017-2018-bankers-without-borders

The New Dynamics of Financial Globalization
https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/The%20new%20dynamics%20of%20financial%20globalization/Financial%20globalization_Full%20Report_August_29_2017%20(1).pdf

Benefits and Costs of Capital Account Liberalisation
https://www.imf.org/external/pubs/ft/fandd/basics/capital.htm

Financial Spillovers, Spillbacks, and the Scope for International Macroprudential Policy Coordination
https://www.bis.org/publ/bppdf/bispap97.htm 

Financial Globalization and Economic Policies
https://www.brookings.edu/research/financial-globalization-and-economic-policies/ 

Basel III: International Regulatory Framework for Banks
https://www.bis.org/bcbs/basel3.htm

Bank Regulation and Supervision a Decade after the Global Financial Crisis
https://www.worldbank.org/en/publication/gfdr/report

Topic 5

Obstacles to International Policy Coordination, and how to Overcome Them
https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/ Obstacles-to-International-Policy-Coordination-and-How-to-Overcome-Them-41074 

IMF, G-20 Surveillance Note, IMF Publications (Washington DC: 2020). 
G-20 Surveillance Note, Group of Twenty Leaders' Summit, November 21-22, Riyadh Summit, Virtual Meeting (imf.org)

History of the 1918 Flu Pandemic. 
https://www.cdc.gov/flu/pandemic-resources/1918-commemoration/1918-pandemic-history.htm 
 

For every 10 course unit credits we expect students to work for around 100 hours. This time generally includes any contact times (online or face to face, recorded and live), but also independent study, work for coursework, and group work. This amount is only a guidance and individual study time will vary.