International macroeconomics and finance, second year: spring 2017

The objective of the course is to offer students an introduction to recent work in international macroeconomics and finance. The course will cover both theoretical and empirical contributions and will often refer to current issues on financial globalization and financial crises. The prerequisites for this course are an introductory course in microeconomics and and more importantly one in macroeconomics. Although not very formalized (I will mostly use graphs to explain theoretical mechanisms), this course will use some basic mathematical tools that are common in any modern economic course.



Half of the grade based on a essay written at home (in teams of 2 to 3 students): Find an article (The Economist, FT, …) which deals with a subject of international macroeconomics (exchange rates, current account, capital flows, economic policy in the open economy…). In a 4 page (max) document use the theoretical mechanisms analyzed in the course to illustrate and criticize the article (or the theory) and go deeper in the issue at stake. The essay is due March 30.

some examples of good term papers last year: (1), (2), (3), (4)

Half of the grade is based on the final exam

Past final exams are here.

2014 exam with answers


Textbook: International Economics: Theory and Policy, 9/e by Paul R. Krugman, Maurice Obstfeld and Marc Melitz (KOM), Pearson

Required readings are marked by an asterisk *.

1) Globalization : some stylized facts and historical comparisons (course 1)


• The measures of financial globalization

• The present and the past of financial globalization

• The comparison of commercial and financial globalization

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

- 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

Stefan Avdjiev, Robert McCauley, Hyun Song Shin, Conceptual challenges in international finance, 28 September 2016, VOXEU

The drivers of financial globalization, 2008, Philip R. Lane and Gian Maria Milesi-Ferretti, American Economic Review

- Financial Times: Powered down capital flows, Jan. 7, 2014

- Argentina and capital controls: FT, January 24

2) Open economy national income identities and the balance of payments (course 2 and 3)


• Global imbalances and the US current account deficit

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

• Global imbalances and the financial crisis

* KOM: chapter 13

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

The Balance of Payments Crisis in the Euro Area Periphery, Matthew Higgins and Thomas Klitgaard, 2014

Eichengreen B., Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. Oxford University Press, January 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

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.

US data on the Balance of payments

French data on the Balance of payments

The greek balance of payment

3) Exchange rates, portfolio choices and financial markets (course 3 and 4)


• The exchange rate as a relative price

• The exchange rate as the price of an asset

• The uncovered interest parity condition

* KOM : chapter 14

More technical: Barbara Rossi, Exchange rate predictability, Journal of Economic Literature, December 2013.

Menzie Chinn, “Uncovered Interest Parity and Monetary Policy Near and Far from the Zero Lower Bound”

4) Monetary policy, interest rate and the exchange rate (course 5-6)


• The impact of interest rates and expectations on exchange rates

• The overshooting model of Dornbush and the volatility of the exchange rate

• Exchange rates and monetary policy at zero interest rates

* KOM : chapitre 15

Benassy-Quéré, Bénassy-Quéré, Gourinchas, Martin and Plantin, Conseil d'Analyse Economique, The Euro in the ‘Currency War’, January 2014 (version française ici). See VOX.EU

Claudio Borio, Robert McCauley, Patrick McGuire, Vladyslav Sushko, "Bye-bye covered interest parity" on VOX.EU


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

More technical paper on monetary policy at the zero lower bound: "Methods of Policy Accommodation
at the Interest-Rate Lower Bound
" Michael Woodford, 2012


5) Long term exchange rate and inflation (course 7)


• The theory of Purchasing Power Parity (PPP)

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

* China, PPP and its real exchange rate

* KOM : chapter 16

The Big Mac Index with Balassa Samuelson effect, The Economist , July 2011 (see here for 2014 Big Mac index)

China is not yet number one, Jeffrey Frankel, VOXEU, , May 2014

More technical: Pitfalls in Measuring Exchange Rate Misalignment The Yuan and Other Currencies, Cheung,  Chinn and Fujii


6) Production and exchange rate in the short run (course 8-9)


• The Mundell-Fleming model (AA/DD version)

• Economic policy in an open economy, spillovers of fiscal and monetary policies ("currency wars")

* KOM: chapter 17

Georgios Georgiadis, Arnaud Mehl, Financial globalisation and monetary policy effectiveness
November 2016, VOXEU

Jason Furman, The New View of Fiscal Policy and Its Application, Oct. 2016

* How big are fiscal multipliers? E. Ilzetzki, E. Mendoza and C.Vegh, CEPR policy insight

Currency wars rebound on the Fed, Gavyn Davies, FT, March 2015

Benassy-Quéré, Gourinchas, Martin and Plantin, Conseil d'Analyse Economique, The Euro in the ‘Currency War’, January 2014


7) Fixed versus floating exchange rates and the role of central bank interventions (course 10)


• The loss of monetary policy autonomy under fixed exchange rates (the trilemma) and currency wars

• The case of Denmark, the Gold Standard and China

• Balance of payment crises: fundamentals based crises and self-fulfiling crises

*KOM: chapter 18

* Fetters of gold and paper, Barry Eichengreen, Peter Temin, 2010, VOXEU

Managing the exchange rate: It's not how much, but how? Atish R Ghosh, Jonathan D Ostry, Mahvash Saeed Qureshi, April 2014.

Floating currency brings instability for small countries, FT, April 2017

Eichengreen, Barry (1992), Golden Fetters: The Gold Standard and the Great Depression, 1919-1939, Oxford University Press.

Exchange Rates and Economic Recovery in the 1930s: Barry Eichengreen and Jeffrey Sachs The Journal of Economic History, Vol. 45, No. 4 (Dec., 1985)

More technical: Dilemma not Trilemma: The Global FinancialCycle and Monetary Policy Independence; Hélène Rey, Paper presented at the 25th Jackson Hole symposium, Wyoming, August 2013.

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

Michael W. Klein, and Jay C. Shambaugh, Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy, 2013

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

8) The euro and optimal currency areas (course 11)


• The theory of optimal currency areas

• The European experience

 * KOM : chapter 20

Revenge of the Optimum Currency Area, Paul Krugman, 2012

Currency Unions in Prospect and Retrospect, J.M.C. Santos Silva1 and Silvana Tenreyro, 2010, The
Annual Review of Economics

Intra-European Labor Migration in Crisis Times, X. Chojnicki, A. Edo and L.Ragot, 2016, CEPII Policy Brief

On the benefits and costs of a monetary union, Francesco Paolo Mongelli, CEPR Policy insight

More technical: The governance of a fragile eurozone, Paul de Grauwe, April 2011


9) Sovereign debt crises and the euro crisis (course 12)


• Sovereign debt crises and the euro crisis

*KOM : chapter 22

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

Sovereign default and debt restructuring: Was Argentina’s ‘haircut’ excessive? Sebastian Edwards 04 March 2015, VOXEU

Sovereign-debt relief and its aftermath: The 1930s, the 1990s, the future?, VOXEU, Carmen M Reinhart, Christoph Trebesch 21 October 2014

* Philip Lane, 2012, The European Sovereign Debt Crisis, Journal of Economic Perspectives—Volume 26, Number 3—Summer 2012

On multiple equilibria eurozone style, The Economist, October 2011

What caused the great recession in the Eurozone? What could have avoided it? Philippe Martin and Thomas Philippon, 2014, VOXEU

Developing economies are suffering their biggest capital outflows since the financial crisis, FT, April 2015

The Euro’s Three Crises, Jay C. Shambaugh, Brookings Papers on Economic Activity Spring 2012

Pierre-Olivier Gourinchas, Maurice Obstfeld, Understanding past and future financial crises, 2012


More technical: Jeanne, Olivier D., Currency Crises: A Perspective on Recent Theoretical Developments, Princeton Special Papers in International Economics 20, 2000. 

U. Panizza, F. Sturzenegger, and J. Zettelmeye, Journal of Economic Literature 2009, The Economics and Law of Sovereign Debt and Default

M. Obstfeld, 2013, Finance at Center Stage: Some Lessons of the Euro Crisis.

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)

P-0 Gourinchas and M. Obstfeld, Stories of the Twentieth Century for the Twenty-First, NBER Working Paper No. 17252, July 2011