Master PEI: International Macroeconomics


International Macroeconomics

Master PEI, Fall 2014

IMPORTANT: the website will be updated regularly 

The objective of the course is to present to students empirical and theoretical analysis that will help them analyze current issues related to macroeconomic policies in open economies, financial globalization and financial crises. The focus of the course will be on policy oriented questions. Although the course will not be as theoretical and model oriented as a standard international macroeconomics course in a master program in economics, the students are expected to have a basic understanding of the standard tools in macroeconomics. Students with no background in economics are strongly recommended to master an introductory textbook in macroeconomics.

The aim of the course is also that students will be able to read simple research articles that can be used for the writing of policy notes.

The 12 courses (24 hours) run on Thursdays from 10.15 to 12.15. Course of October 30th canceled. Last session on December 4th.


Grades are based on a group homework (40%) and a final examination (60%)

Homework: by groups of 4 (3 min./5 max.). To be handed back in class the week of lecture 8 (November 6th).

Find a policy question (some examples provided in class) which deals with an issue in international macroeconomics and finance. Using policy and academic articles (see among others IMF, World Bank, ECB, Federal Reserve, Economic Policy, NBER, CEPR discussion papers, see also in VOX the columns that refer to research articles) or press articles (FT, The Economist...), provide a critical answer to the question. Your are expected to define precisely the question and provide an answer weighting the pros and cons in a (maximum) 6 pages document (max. 3500 words). Providing data to justify your conclusions would be appreciated. 

Final exam: Multiple choice questions and short essays - Correction

Sample for the final exam

Grading policy (multiple choice)



Main reference: Textbook - Krugman, Paul R. and. Maurice Obstfeld (K&O) International Economics: Theory and Policy, édition Addison-Wesley, 8th edition

Additional readings at each session are posted on the website. Required readings are marked by an asterisk *.



Lectures 1 and 2- The Global Financial Markets [Slides I] [Slides II]

- The present and the past of financial globalization

- The collapse of financial flows during the global financial crisis

- The case for financial globalization and the Lucas puzzle

- International diversification

- The transmission of shocks through global financial markets


* Alan Taylor, 2004, Global Finance: Past and Present

* K&O: chapter 21

Kevin H. O'Rourke and Jeffrey G. Williamson Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy, MIT press, 1999.

Ronald Findlay & Kevin H. O'Rourke, Power and Plenty: Trade, War, and the World Economy in the Second Millennium, Princeton University Press, 2007

Capital Inflows: The Role of Controls, IMF staff position note.

Why Doesn't Capital Flow from Rich to Poor Countries?, Robert E. Lucas, 1990. American Economic Review [pdf]

* Gian Maria Milesi-Ferretti and Cedric Tille, 2011, The Great Retrenchment: International Capital Flows during the Global Financial Crisis, Economic Policy.

* Bekaert G, Harvey, C. and Lundblad, C., 2005, Does financial liberalization spur growth?, Journal of Financial Economics.

More technical :

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.

Alfaro, Kalemli-Ozcan, and Volosovych, Why doesn't capital flow from rich to poor countries? An empirical investigation, Review of Economics & Statistics, May2008, Vol. 90 Issue 2, p347-368,

P.-O. Gourinchas and O. Jeanne, “The Elusive Gains of International Financial Integration”,  2006, Review of Economic Studies 73, pp. 715-741

Cetorelli and Goldberg, "Global Banks and international shock transmission: evidence form the crisis", NBER WP 15974, 2010.

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


Lecture 3 and 4 - Money, interest rates and nominal exchange rates  - [Slides]

- The FOREX Market

- The exchange rate as the price of an asset

- The uncovered interest parity condition: exchange rates, interest rates and expectations

- Empirical deviations from the uncovered interest parity condition: risk premia, bubbles and endogenous monetary policy

- Monetary models of exchange rates

- The overshooting model of Dornbusch and the volatility of the exchange rate


* K&O: chapter 13 and chapter 14

Understanding exchange rates as asset prices, Jian Wang, Vox Column, 2008

How do UK based Foreign Echange Dealers think their market operates?, Cheung, Chinn and Marsh, International Journal of Finance and Economics

* What Next for the Dollar? The Role of Foreigners. Kristin Forbes, Vox Column, 2008

Armageddon can wait, Kenneth Rogoff, January 2011

Euro looks to win the race to the bottom, by K. Rogoff, January 2011, FT

* More technical but very clear: Rogoff, Kenneth, "Dornbusch's Overshooting Model after 25 Years," IMF Staff Papers 49 (Special Issue 2002): 1-34.


Lecture 5 - Long term exchange rate and inflation  - [Slides]

- The theory of Purchasing Power Parity (PPP)

- Why do poorer countries have lower prices? the Balassa-Samuelson effect

- Is the Chinese currency undervalued? How would an appreciation occur?


* K&O : chapter 15

Inflation in China; The Economist, February 2011.

Krugmann, P., China’s Swan Song, New York Times, 2010

Huang, Y., Krugman’s Chinese renminbi fallacy, 2010. Vox Column

More technical: 

K. Rogoff, ‘The purchasing power parity puzzle’, Journal of Economic Literature, June 1996, 647-668.


Lecture 6 and 7  - Current Account Imbalances and Exchange Rates [Slides]

- Review of open economy national income identities and the balance of payments

- BOP theory of exchange rates

- Global imbalances and the US current account deficit

- Global imbalances and the financial crisis

- International adjustment

- Is there an “exorbitant privilege” of the dollar?

- Global imbalances in the eurozone


* K&O: chapter 12

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

and the comment by R. Caballero

Current account imbalances coming back, Joseph Gagnon, Jan 2011

Why Are Savings Patterns So Different?, Keyu Jin, Project Syndicate, 2012.

China’s Consumer Babies, Keyu Jin, Project Syndicate, 2013.

US data on the Balance of payments, French data on the Balance of payments

see also recent position papers on global imbalances for the G20

Currencies: strength in reserve (FT, Feb. 9, 2011)

More technical papers: Gourinchas P.-O. and H. Rey, 2005, ‘From world banker to world venture capitalist: US external adjustment and the “exorbitant privilege', (in "G7 Current Account Imbalances: Sustainability and Adjustment", Richard Clarida, editor, The University of Chicago Press, 2007, pp11-55


Lectures 8 and 9 - Exchange rate and output in open economies : the role of policies  [Slides]

- International financial markets, goods markets and exchange rates determination

- Economic policy in an open economy

- Fiscal stimulus and fiscal adjustment

- Quantitative easing and exchange rates in the present situation


* K&O: chapter 16

* "Will it hurt? Macroeconomic effects of fiscal consolidation", IMF World Economic Outlook, 2010

Rethinking macro policy, O. Blanchard, G. Dell'Ariccia  and P. Mauro in VOX

* How big (small?) are fiscal multipliers? E. Ilzetzki, E. Mendoza and C.Vegh, IMF Working Paper, 2011


Lectures 9 and 10 - Fixed versus floating exchange rates and the role of central bank interventions - [Slides]

- The loss of monetary policy autonomy under fixed exchange rates (the trilemma)

- Currency unions

- Fiscal policies under fixed exchange rate

- Balance of payment crises: fundamentals based crises and self-fulfilling crises


* K&O: chapter 17

* M. Obstfeld, J. Shambaugh and A. Taylor, Financial Stability, the Trilemma, and International Reserves

Joshua Aizenman, Menzie D. Chinn, and Hiro Ito, Surfing the Waves of Globalization: Asia and Financial Globalization in the Context of the Trilemma, NBER working paper15876


Lectures 11 and 12 - International financial crises

- Financial crises and balance sheet effects [Slides Part I]

- Sovereign debt crises [Slides Part II]

- Bubbles and crashes [Slides Part III]


* K&O : chapter 22

* From Financial Crash to Debt Crisis, Carmen M. Reinhart and Kenneth S. Rogoff, NBER Working Paper No. 15795, 2010

Redemption or abstinence? : Hausmann and Panizza on the 'Original Sin' in VOX

K. Rogoff, April 7 2010, Bubbles lurk in government debt, Financial Times

More technical: Jeanne, Olivier D., Currency Crises: A Perspective on Recent Theoretical Developments, CEPR Discussion paper, 2000. 

P. Krugman, Balance Sheets, the Transfer Problem, and Financial Crises, International Tax and Public Finance, Volume 6, Number 4, November 1999 , pp. 459-472(14)