Master in Economics : International Economics


International Economics

M2, Fall 2019, Master in Economics, Prof. Thierry Mayer and Nicolas Coeurdacier

Topics covered

Part 1 --- International Trade (Prof. Thierry Mayer)

Modern approaches to Ricardo

Trade with increasing returns, monopolistic competition and the Home Market Effect

A primer on the welfare consequences of trade

Part 2 --- International Macroeconomics (Prof. Nicolas Coeurdacier)

Financial integration, growth and capital flows

Risk-sharing and the international transmission of shocks


Problem sets (50%) and final examination (50%). Indicative answers for final exam [pdf]

International Economics Homework 2 ---- Data ----- Correction

Due date for Homework 2: November 22 at 2.45pm.


There will be no single set text, but there will be frequent citations from the following textbook:

Handbook of International Economics, Volume 4, 1st Edition, 2014, by Gita Gopinath, Elhanan Helpman, Kenneth Rogoff

For the second part of the course, possible to refer to: M. Obstfeld and K. Rogoff, Foundations of International Macroeconomics (MIT Press, 1996)



Part 1 - International Trade (Prof. Thierry Mayer)

see Prof. Thierry Mayer's website [link]


Part 2 - International Macroeconomics

* denotes compulsory readings.

1. Financial integration, growth and capital Flows
Capital flows and the intertemporal approach to the current account [slides]

*Obstfeld M. and K. Rogoff, Intertemporal Trade and the Current Account Balance, Chapter 1.

Nason and Rogers, The Present-Value Model of the Current Has Been Rejected: Round up the Usual Suspects, Journal of International Economics 68, 159-187, 2006

A. Kraay et J. Ventura, Current Accounts in Debtor and Creditor Countries, Quarterly Journal of Economics, November 2000


Global imbalances, international adjustment and valuation effects [slides]

*Gourinchas, P. O., Rey, H., 2014, External Adjustment, Global Imbalances and Valuation Effects, Handbook of International Economics, Chaper 10, 585-640.

Caballero, R.J., E. Farhi, and P. O. Gourinchas. 2008. An Equilibrium Model of ‘Global Imbalances’ and Low Interest Rates, American Economic Review 98(1): 358–93.

Gourinchas PO and H. Rey, International Financial Adjustment, Journal of Political Economy, 115(4), August 2007.

Lane, P. and G.M Milesi-Feretti, 2007, The External Wealth of Nations Mark II, Journal of International Economics.

P-O Gourinchas, Valuation effect and external adjustment: a review, mimeo Central Bank of Chile, 2008.

Gourinchas, P. O., Rey, H., 2007. From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege. G7 Current Account Imbalances: Sustainability and Adjustment.


Capital flows and welfare gains from financial integration [slides]

M. Ayhan Kose, Eswar Prasad, Kenneth S. Rogoff, Shang-Jin Wei, 2006, Financial Globalization: A Reappraisal, NBER Working Paper No. 12484

Peter Blair Henry, 2007. Capital Account Liberalization: Theory, Evidence, and Speculation, Journal of Economic Literature, vol. 45(4), pages 887-935, December

Bekaert, Harvey and Lundblad, Does Financial Liberalization Spur Growth?, Journal of Financial Economics 77, 2005, 3-55.

Lucas R., 1990. Why Doesn’t Capital Flow from Rich to Poor Countries? American Economic Review, 80(2), 92-96

*Caselli, F. and Feyrer, J., 2007, The Marginal Product of Capital. Quarterly Journal of Economics.

*P.-O. Gourinchas and O. Jeanne, The Elusive Gains of International Financial Integration, 2006, Review of Economic Studies 73, pp. 715-741 [simplified version details]


Going beyond. Capital flows: assessing long-run efficiency [if time permits]

Heathcote, J. and Perri, F., 2014, Assessing International Efficiency. Sections 2 and 3. Hanbook of International Economics.

Gourinchas, P-O, and Jeanne, O., 2013. Capital Flows to Developing Countries: The Allocation Puzzle, Review of Economic Studies.

Alfaro, L., Kalemli-Ozcan S., and Volosovych V., 2014. Sovereigns, Upstream Capital Flows and Global Imbalances. Journal of the European Economic Association, vol. 12(5).

2. Risk-sharing and the international transmission of shocks
Baseline one-good model [slides]

*Obstfeld and Rogoff Chapter 5

Complete markets

*Backus, D., P. Kehoe and F. Kydland, ''International Business Cycles: Theory and Evidence'', quarterly review, fall 1993 (1st part)

Backus, D., P. Kehoe and F. Kydland, ''International Real Business Cycles'', Journal of Political Economy, Aug. 1992, 100(4), 745-775 

Incomplete markets: risk-free bond-only economy

Kollmann, R., 1996, Incomplete Asset Markets and the Cross-Country Consumption Correlation Puzzle, Journal of Economic Dynamics and Control, Vol.20, pp.945-962.

Baxter, M. and Crucini, M., 1995. Business Cycles and the Asset Structure of Foreign Trade, International Economic Review.

Empirical evidence [if time permits --- slides]

Kalemli-Ozcan, Papaioannou and Peydro, 2013. Financial Regulation, Financial Globalization and the Synchronization of Economic Activity, Journal of Finance.


Multiple goods [slides]

*Heathcote, J. and Perri, F., 2014, Assessing International Efficiency. Section 4. Hanbook of International Economics.

Terms-of-trade and risk-sharing with complete markets 

Backus, D., P. Kehoe and F. Kydland, ''International Business Cycles: Theory and Evidence'', quarterly review, fall 1993 (2nd part)

Backus, D. ,P. Kehoe and F. Kydland, ''Dynamics of the trade balance and the terms of trade: the J curve ?'' American Economic Review, Mar 1994, 84(1), 84-103

Incomplete markets

Cole H. and M. Obstfeld, 1991. Commodity Trade and International Risk Sharing: How much do Financial Markets Matter?", Journal of Monetary Economics 28 (August): 3-24.

Heathcote, J. and F. Perri, 2002. Financial Autarky and International Business Cycles. Journal of Monetary Economics, 49 (3), 601-627.

Corsetti G., Dedola L. and Leduc S., 2007, International Risk Sharing and the transmission of productivity shocks, Review of Economic Studies

Empirical evidence [if time permits --- slides]

Devereux , M.B. and Hnatkovska, V., 2013. Borders and Nominal Exchange Rates in Risk-Sharing. Mimeo UBC

Price rigidities and the international transmission of monetary shocks [if time permits]

Obstfeld M. and K. Rogoff, 1995. Exchange Rate Dynamics Redux. Journal of Political Economy, 103 (3), 624-660.

Lane, P., 2003, The New Open Economy Macroeconomics: a Survey, Journal of International Economics, 54 (2), 235-266.