Master EPP : International Macroeconomics I


International Macroeconomics I

M2, Fall 2014, master EPP, Prof. Philippe Martin and Nicolas Coeurdacier


TOPICS COVERED (for the second part)

Financial globalization and world income

Capital flows, the current account and global imbalances

International real business cycles



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

M. Obstfeld and K. Rogoff, Foundations of International Macroeconomics (MIT Press, 1996) (abbreviated OR in list of readings)

Also useful: Nelson C. Mark, International Macroeconomics and Finance: Theory and Econometric Methods (Blackwell Publishers, 2001)



There will be 2 problem sets (2x25%) and a final examination (50%).

Homework 1 - [delivered at lecture 4 to be handed back in class at lecture 6] - Correction

Homework 2 - [delivered at lecture 8 to be handed back in class at lecture 10] - Correction

Final exam correction

Sample final exam - Correction




Lectures 1 to 6 with Philippe Martin


Lectures 7-8 : Financial integration, Globalization and world income

Financial integration: : past and present

Lane, Philip R., and Gian Maria Milesi-Ferretti. 2007. “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004.” Journal of International Economics, 73(2): 223-250.

Lane, Philip R and Gian Maria Milesi-Ferretti, 2008, "The Drivers of Financial Globalization" American Economic Review (Papers and Proceedings), May 2008.

The case for financial integration

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, American Economic Association, vol. 45(4), pages 887-935, December

Peter Blair Henry, 2003. Capital-Account Liberalization, the Cost of Capital, and Economic Growth, American Economic Review, 93(2), p 91-96.

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

*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]

Obstfeld, M., 1994, Risk-Taking, Global Diversification and Growth, American Economic Review, 84, 1310-1329.

G. Saint-Paul, 1992, Technological choice, financial markets, and economic development, European Economic Review, Vol. 36, pp. 763-781

Kalemli-Ozcan, S., Sorensen B.E., Yosha, O., 2003, Risk-Sharing and Industrial Specialization: Regional and International Evidence, American Economic Review, 93.

Thesmar, D. And Thoenig, M., 2011, Contrasting Trends in Firm Volatility: Theory and Evidence. American Economic Journal: Macroeconomics.

Kalemli-Ozcan, S., Sorensen B.E. and Volosovych, V., 2010, Deep Financial Integration and Macroeconomic Volatility, NBER working paper 15900 [pdf]

Obstfeld M. and K. Rogoff, 2000, The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?”,  NBER Macroeconomics Annual. 


Lectures 9-10 : International capital flows and current account Dynamics
Part 1. The intertemporal approach to the current account [SLIDES]

*OR, pp. 1-39, 42-54, 59-70, 74-76, 79-89, 129-145, 161-163

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

Part 2. International capital flows: assessing long-run efficiency [SLIDES]

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

*Heathcote, J. and Perri, F., 2013, Assessing International Efficiency. Sections 2 and 3. Hanbook of International Economics, forthcoming [pdf]

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

Part 3. Global imblances and international adjustment [SLIDES]

Olivier Blanchard and Gian Maria Milesi-Ferretti, 2009, Global Imbalances: In Midstream?

Obstfeld M. and K. Rogoff, 2009, Global Imbalances and the Financial Crisis: Products of Common Causes

International adjustment

*Obstfeld M. and K. Rogoff,  The Unsustainable US Current Account Position Revisited, NBER 2005

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

Corsetti, G. P. Martin,  and P. Pesenti,"Varieties and imbalances: the extensive margins of the current account adjustment", with Giancarlo Corsetti and Paolo Pesenti. NBER WP 13795

Valuation effects and the US 'exorbitant privilege'

Lane, P. and G.M Milesi-Feretti, 2007, The External Wealth of Nations Mark II, Journal of International Economics, 73

Devereux and Sutherland, 2010, Valuation effects and the dynamics of net external assets, Journal of International Economics

Pavlova A. and R. Rigobon, 2010, An Asset-Pricing View of External Adjustment, Journal of International Economics

P-O Gourinchas and H. Rey, 2005, ‘From world banker to world venture capitalist: US external adjustment and the “exorbitant privilege”’, CEPR DP 5220.

P-O Gourinchas, Valuation effect and external adjustment: a review, 2009

Rey, H., Gourinchas P-O, and Govillot, N., 2010, Exorbitant Privilege and Exorbitant Duty, mimeo LBS

Lecture 11-12. Risk sharing and International real business cycles
Part 1: 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

Part 2: International real business cycles with multiple goods [SLIDES]

*Heathcote, J. and Perri, F., 2013, Assessing International Efficiency. Section 4. Hanbook of International Economics, forthcoming [pdf]

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

Backus, D., and G.W, Smith, 1993, “Consumption and Real Exchange Rates in Dynamic Economies with Non-traded Goods”, Journal of International Economics, 35, 297-316.

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.

Kollmann, R., 1995, Consumption, Real Exchange Rates and the Structure of International Asset Markets, Journal of International Money and Finance, 1995, Vol. 14, pp.191-211.

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

Part 3: Recent empirical evidence on International Real Business Cycles [if time permits][SLIDES]

Consumption-real exchange rate anomaly

Devereux , M.B. and Hnatkovska, V., 2011. Consumption Risk-Sharing and the Real Exchange Rate: Why does the Nominal Exchange Rate Make Such a Difference? NBER Working Papers 17288

Financial integration and business cycle comovements

Imbs, J., 2004, Trade, Finance, Specialization and Synchronization, Review of Economics and Statistics, 86(3), pp.723-734.

Imbs, J., The Real Effects of Financial Integration, Journal of International Economics, March 2006, Vol 68(2).

*Kalemli-Ozcan, Papaioannou and Peydro, 2011. Financial Regulation, Financial Globalization and the Synchronization of Economic Activity, Journal of Finance, forthcoming. [pdf]