College: Trade and International Finance

Trade and International Finance

Professor Thierry Mayer and Nicolas Coeurdacier

First Semester 2019-2020. Reims Campus.

College Universitaire (Second Year).

Course Overview and Learning Objectives

The objective of the course is to offer students an introduction to two key dimensions of globalization:  international trade and international finance. The course will cover both theoretical and empirical contributions and will often refer to current policy issues in both international trade and macroeconomics. Using theoretical and empirical tools, we will consider a wide range of questions such as: what are the gains of specialization? what is the effect of trade on inequality? How does market power of firms affect international trade? What are the consequences of trade policies? How to understand international financial flows? What is the relation between exchange rates and monetary policy? How does globalization affect the conduct of macroeconomic policies?  Is the euro an optimal currency area? Why so many international financial crises?
The prerequisite for this course is the core economics course in the first year. Although not very formalized (we will mostly use graphs to explain theoretical mechanisms), this course will use some basic mathematical tools that are common in any modern economic course.

Course schedule

8 lectures of 3 hours. 4 in Trade by Prof. T. Mayer and 4 in international Finance by Prof. N. Coeurdacier
International Finance Lectures: 10.15-13.15 on wednesdays: October 16; November 6, 13 & 20.
12 TA sessions.


One mid-term and one final exam (2 hours each). Each counting for 1/3 of the final grade.
Exams format: MCQ/short questions + short exercises + more open questions (roughly equal weights)
TA sessions (Conférence de Méthodes) : remaining 1/3 of the grade.


Main textbook: Krugman, Paul R., Maurice Obstfeld and Marc Melitz (KOM) International Economics, Pearson 9th edition.

For the trade part, possible to refer to: Mucchielli Jean-Louis and Thierry Mayer (MM) Economie internationale, Hypercours, Dalloz, Paris, 2005.

Additional readings and materials for the lecture are available online.


Part 1. International Trade (Prof. Thierry Mayer)

Material posted on Thierry's Mayer website [link]

Part 2. International Finance (Prof. Nicolas Coeurdacier)
Lecture 1. Financial Globalization and Capital Flows [slides]

Financial Globalization. National Income Identities and the Balance of Payments. Theory of international capital flows. Net foreign assets and valuation effects.

Textbook: KOM: chapter 13 (and part of chapter 20)

TA Session 7 --- Data [TD7_BOP]
TA Session 8  --- Data [TD8_NFA]

Peter Blair Henry, 2007. Capital Account Liberalization: Theory, Evidence, and Speculation. Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935.
Davide Furceri, and Prakash Loungani, 2015. Openness and Inequality: Distributional Impacts of Capital Account Liberalization, IMF Blog.
Maurice Obstfeld, 2018. Addressing Global Imbalances Requires Cooperation. IMF Blog.
Zucman, G. (2013). The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors? The Quarterly Journal of Economics, 128(3), pp.1321-1364.

Going beyond. Supplementary material.
IMF 2018 External Sector Report: Tackling Global Imbalances amid Rising Trade Tensions.
Kristin Forbes, 2016. Current account deficits: knowing when to act. Vox interview at the Royal Economic Society.
Furceri, Davide, Prakash Loungani and Jonathan D. Ostry. (2018). The aggregate and distributional effects of financial globalization: Evidence from Macro and Sectoral Data. IMF Working Paper.
Torslov, T.,  Wier, L. and Zucman, G., (2018). The missing profit of nations. Vox column.
Gourinchas P-O, and Rey,H. (2007). From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege. University of Chicago Press.
Database on Foreign Assets & Liabilities across the globe (P. Lane and G.M. Milesi-Feretti, updated version available on this link)

Lecture 2. Money, Interest Rates and Exchanges Rates [slides]

Foreign exchange markets. Spot and Forward Exchange Rate. Covered and Uncovered interest parity conditions. Monetary policy, interest rate and the exchange rate.

Textbook: KOM : chapters 14 and 15

TA Session 9 --- Data [TD9_PPP]

Carry Trade and Exchange Rates, 2010. ECB Monthly Bulletin, March 2010.
Lukas Menkhoff, Lucio Sarno, Maik Schmeling, Andreas Schrimpf, 2011. The risk in carry trades. vox column.

Going beyond. Supplementary material.
John Fernald, Thomas M. Mertens, and Patrick Shultz, 2017. Has the Dollar Become More Sensitive to Interest Rates?, Federal Reserve Bank of San Francisco Economic Letter.


Lecture 3. Economic Policies in Open Economies [slides]

Purchasing Power Parity. Real exchange rate, competitiveness and current accounts. The Mundell-Fleming model (AA/DD version). Monetary and fiscal policies in an open economy. International spillovers of policies.

Textbook: KOM : chapters 16 and 17

TA Session 10

Olivier Blanchard (2017). Currency Wars, Coordination, and Capital Controls. International Journal of Central Banking.
Raghuram Rajan (2014). Containing Competitive Monetary Easing. Project Syndicate

Going beyond. Supplementary material.
B. Bernanke, 2015. Federal Reserve Policy in an International Context. IMF Mundell Flemming Lecture [Corresponding video]
F. Broner, D. Clancy, A. Martin and A. Erce, 2018. Fiscal Multipliers and Foreign Holdings of Public Debt. Blog of Barcelona Graduate School of Economics.


Lecture 4. Fixed Exchange Rates and Currency Unions [slides]

The loss of monetary policy autonomy under fixed exchange rates. The Mundellian Trilemma. Capital controls. Currency unions and the theory of optimal currency areas; The European experience. Financial crisis: Currency and sovereign debt crises.

Textbook: KOM : chapters 18, 21 and 22

TA Session 11

Rey, Hélène (2016). International Channels of Transmission of Monetary Policy and the Mundellian Trilemma. IMF Economic Review, vol 64(1), 2016, pages 6-35. [Blog version: vox column]
Paul Krugman (2012). Revenge of the Optimum Currency Area. NBER Macroeconomics Annual.

Going beyond. Supplementary material.
Jay Shambaugh, 2012. The Euro’s Three Crises. Brookings Papers on Economic Activity.