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| Professor Mario J. Crucini 401 Calhoun Hall | Office hours: Monday and Friday 2:00 p.m. – 3:00 p.m. and by appointment Phone: 322-7357 Mario.J.Crucini@vanderbilt.edu |
Course Objectives
The goal of the course is to introduce you to areas of active research in international macroeconomics and to familiarize you with some of the models that economists use in their analysis. Importantly we will develop your research abilities beginning with the skill of posing a provocative research question, formulating empirical and theoretical models and moving the process toward finding an answer to your question.
Course Topics
The following is a reasonably comprehensive list of broad topics and specific questions that occupy the time of many international macroeconomists, many of which we will deal with this semester. The order follows the timing of topics to be covered during the semester.
International Exchange Rates and Prices
Why are nominal and real exchange rates so volatile? What are the real effects of changes in nominal and real exchange rates? Does the exchange rate regime matter? For what does it matter? What determines a nation’s terms of trade and changes in the terms of trade over time? How is the terms of trade related to the trade balance? Why are prices so different across national borders? What are the implications of the answers to these questions for monetary policy or optimal currency areas?
Business Cycles and Current Account Balances
What accounts for the strong positive comovement of international output across developing and developed nations? Why are national savings and investment rates highly correlated despite the fact that there do not exist official barriers to international capital movements? Why are consumption correlations lower than output correlations? Why do current account balances increase dramatically during war? What accounts for the large U.S. current account imbalances in the 1980’s?
International Perspectives on Great Depressions
For many macroeconomics the Great Depression mean the collapse of economic activity in many industrialized countries during the 1930s. Our goal in this section of the course is to broaden the study to include more recent depressions of the 20th century. Moreover, we will emphasize the international dimensions of recent and historical economic depressions.
Course Requirements
Your grade will be based on class participation (20%), a term paper (30%), a computer project (20%) and a midterm examination (30%). Each student will give two presentations, the first involving presentation of a research article (this will count towards your class participation grade). The article chosen should either be one from the reading list or relate closely to the topics on the reading list. I request that you get my approval regarding the appropriateness of the article before investing time on your presentation. The second presentation will be set aside for preliminary drafts of the term paper (this will take place toward the end of the semester). I require that you submit a research proposal by Wednesday, February 18, 2000 (the sixth week of class). There will be a single (midterm) examination in this course the date and time of which will be announced during the semester.
I expect that you have familiarity with formal modeling and basic time series econometrics.
The main readings for this course will either be distributed in class (my lecture notes, published articles published of mine) or be placed on reserve in the Alexander Heard Library.
Readings
On the course outline below you will note that most sections have references of three types: 1) lecture notes of mine (some of which will be made available, others are still in progress of creation), 2) overview chapters from the first two sources listed below, and (mostly) published and unpublished research articles.
"Foundations of International Macroeconomics," by Maurice Obstfeld and Kenneth Rogoff, Cambridge Massachusetts: The MIT Press, 1996.
"Handbook of International Economics: Volume 2, Gene M. Grossman and Kenneth Rogoff, editors, New York: Elsevier Press, 1995, (some are from Volume 2)
International Economics: Theory and Policy. Krugman, P. and M. Obstfeld Fifth Edition, New York: Addison Wesley Longman, 2000, available at the bookstore. The course material is drawn primarily from Parts III and IV of the text.
I require that you purchase the first book, it will provide useful background for a wider set of models than we will have time to discuss and work through during the semester. I recommend the undergraduate textbook since reading in the field course often assume that you are familiar with this material. I will go through some key elements of the undergraduate material at a very rapid pace.
The intent of the text, review articles and lecture notes are to give you an overview of general issues in different research areas (these types of references are indicated with an open box). The published article are more specific to a particular question(s) and will help to develop your research skills by providing examples of completed research.
I. OVERVIEW
The reading list below is tentative, it reflects the readings I have required in the past and those that have been emphasized for achieving breadth in preparation for the field examination in international economics. This semester, the approach will be to increase our depth of understanding of how research is conducted on a somewhat narrower set of topics.
Reading indicated with a "*" will be emphasized. Most are available electronically or in print form. Please let me know if you have trouble finding the articles. You will also want to bring a copy of the paper to the class so you can follow along with the discussion.
I. FACTS, THEORIES AND PUZZLES
II. MONEY, PRICES, AND EXCHANGE RATES
A. Theoretical Models of Exchange Rates
* (E) Lucas, Robert E. Jr. 1982. Interest Rates and Currency Prices in a Two-Country World. Journal of Monetary Economics 10, 3, 335-359.
* Dornbusch, Rudiger. (1976) "Expectations and Exchange Rate Dynamics," Journal of Political Economy, 84, 6 1161-1176.
Driskill, Robert A., "Exchange Rate Dynamics, Portfolio Balance, and Relative Prices," American Economic Review, 70, 4 776-783.
* Peit Sercu, Ramman Uppal and Cythia Van Hulle, "The Exchange Rate in The Presence of Transactions Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, 50:4, pp. 1309-1319.
Brian Doyles Homepage of Resources Related to New Open Economy Macroeconomics: http://www.geocities.com/brian_m_doyle/open.html
* Maurice Obsfeld and Kenneth Rogoff. (1995), "Exchange Rate Dynamics Redux," Journal of Political Economy, 103, 3, 624-660.
* Michael Devereux and James Yetman. (2003), "Setting and Exchange Rate Pass-Through: Theory and Evidence," mimeo, University of British Columbia and University of Hong Kong.
B. Empirical Studies of Exchange Rates
Meese, Richard and Kenneth Rogoff. (1983) "Empirical Exchange Rate Models of the 1970's: Do They Fit Out of Sample," Journal of International Economics, 14, 3-24.
* Nelson Mark (1995) "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, 85 1, 201-218.
Baxter, Marianne (1985) "The Role of Expectations in Stablization Policy," Journal of Monetary Economics, 15, 343-362.
* Jean Imbs, Haroon Mumtaz, Morten Ravn and Helene Rey. (2002). "PPP Strikes Back: Aggregation and the Real Exchange Rate." NBER Working Paper 9372, CEPR Discussion Paper 3715.
* Crucini, Mario J., and Mototsugu Shintani. (2002). "Persistence in Law-of-One-Price Deviations: Evidence from MIcro-Data," Vanderbilt University Working Paper, December 2002.
* Engel, Charles and John Rodgers (1997) "How Wide is the Border?" American Economic Review.
* David C. Parsley and Shang-Jin Wei. (2001). "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Volume 55, Issue 1, October 2001, Pages 87-105.
III. MODELS OF TRADE ACROSS TIME AND STATES OF NATURE
A. Review of Quantitative Methods
* King, Robert Charles Plosser, and Sergio Rebelo (1988). "Production Growth and Business Cycles : Technical Appendix".
Crucini, Mario J. (1988). "A Technical Guide For A Computed Based Solution To Dynamic Programming Problems Using Euler Equation Iteration."
King, Robert, Charles Plosser, and Sergio Rebelo. (1988) "Production, Growth and Business Cycles I: The Basic Neoclassical Model," Journal of Monetary Economics 21, 2, 196-232.
B. Partial Equilibrium: The Small Open Economy
* Mendoza, Enrique G. (1991) "Real Business Cycles in a Small Open Economy," American Economic Review 81, 4, 797-818.
C. Basic Theory of Risk-sharing
* Mace, Barbara (1991). "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy 99. 5, 928-956.
D. General Equilibrium Models
* Backus, D., P. Kehoe and Finn Kydland. (1992) "International Business Cycles," Journal of Political Economy, 100, 4, 745—775.
* Crucini, Mario J. (1997) "Country Size and Economic Fluctuations," Review of International Economics.
IV. INTERNATIONAL FINANCIAL MARKETS
A. The Savings Investment Puzzle
Feldstein, Martin and Charles Horioka. (1980) "Domestic Saving and International Capital Flows," Economic Journal 90, 314-329.
* Baxter, M. and M. J. Crucini. (1993) "Explaining Saving and Investment Correlations," American Economic Review, 83, 3, 416—436.
B. Portfolio and Asset Pricing Puzzles
* Cole, Harold L. and Maurice Obstfeld, (1991) "Commodity Trade and International Risk Sharing: How Much do Financial Markets Matter?" Journal of Monetary Economics, 28, 1, 3-24.
* Grossman, Gene M. and Assaf Razin. 1984. International Capital Movements Under Uncertainty. Journal of Political Economy 92, 2, 286-306.
C. Incomplete Markets
* Baxter, M. and M. J. Crucini (1995) "Business Cycles and the Asset Structure of Foreign Trade," International Economic Review 36, 4, 821—854.
Baxter, M. and M. J. Crucini (1993) "Business Cycles and the Asset Structure of Foreign Trade: Technical Appendix," manuscript.
D. Evidence on Risk Sharing
Crucini, Mario J. (1999) "On International and National Dimensions of Risk Sharing," Review of Economics and Statistics."
V. GREAT DEPRESSIONS
The papers for this section will be drawn from two sources. The first is a special issue of the Review of Economic Dynamics, Volume 5(1), pages 1-236, January 2002. All of these papers are available electronically through the library. The second is a special Federal Reserve Bank of Minneapolis Volume on Great Depressions that is being co-edited by Timothy Kehoe and Edward Prescott. Many of these are available at Kehoe’s homepage.