International Macroeconomics
SciencesPo - Master EPP: International Macroeconomics - M2, Spring 2016
Prof. Patrick Pintus (Banque de France) and Daniele Siena (Banque de France)
Syllabus:
The course deals with recent research on international macro
The first part (Lectures 1-6 taught by Patrick Pintus) deals with exchange rates, financial integration and international capital flows and it is divided in three sets of lectures. Lectures 1-2 provide an exposition of the purchasing power parity theory, which aims at explaining how exchange rates are determined. Lectures 3-4 deal with the history, causes and consequences of financial globalization. Lectures 5-6 focus on international capital flows and current account dynamics and examine global imbalances and international financial adjustment. All lectures blend data and analytical models to uncover real-world phenomena and their explanations.
The second part (Lectures 7-12 taught by Daniele Siena) will first focus on the international transmission of shocks in a financially integrated world and second on financial and sovereign debt crisis. Models are introduced as tools to understand the recent economic developments in the world. The course will start by presenting simple frameworks that allow to understand how the economies of different countries are interconnected and how shocks are transmitted across them in a world in which financial markets play an important role. Then, after a general introduction on financial crisis, which will present different types of crisis, the course will analyze in details currency and sovereign debt crisis.
Evaluation (to be decided):
1 mid-term homework (40%) - to be handed back at lecture 8
1 Final exam in class (60%)
Content and Readings
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)
Part I: January 28 – March 17, 2016 (Patrick Pintus)
Part II: March 24 – April 28, 2016 (Daniele Siena)
Lecture 7-8-9. Risk sharing, International real business cycles and the international transmission of shocks - SLIDES (Lecture 1/2) (Lecture 2/3)
Empirical Evidence
*Backus, D., P. Kehoe and F. Kydland, ''International Business Cycles: Theory and Evidence'', quarterly review, fall 1993 (1st part)
Kalemi-Ozcan, S., E. Papaioannou and F. Perri, 2013, “Global banks and crisis transmission”, Journal of International Economics 89, 495-510.
Kalemi-Ozcan, S., E. Papaioannou and J-L. Peydro, 2013, “Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity”, Journal of Finance LXVIII No. 3, (June).
*Devereux, M.B. and V. V. Hnatkovska, 2014, “Borders and Nominal Exchange Rates in Risk-Sharing”, Working Paper.
Cesa-Bianchi, A., J. Imbs and J. Saleheen, 2016, “Finance and Synchronization”, CEPR Working Paper No. 11037
Closing IRBC two-countries and SOE models
Schmitt-Grohe, Stephanie and Uribe, Martin, 2003, "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
*Boileau, Martin and Normandin, Michel, 2008. "Closing international real business cycle models with restricted financial markets," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 733-756, September.
Nicolas Coeurdacier and Helene Rey and Pablo Winant, 2011, "The Risky Steady State," American Economic Review: Papers and Proceedings, American Economic Association, vol. 101(3), pages 398-401, May.
Part 1: Baseline one-good model
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
Exogenous 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
Endogenous Incomplete markets
Patrick J. Kehoe and Fabrizio Perri, 2002, “International Business Cycles with Endogenous Incomplete Markets," Econometrica, Econometric Society, vol. 70(3), pages 907-928, May.
Part 2: International real business cycles with multiple goods
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.
*Heathcote, J. and F. Perri, 2014, “Assessing International Efficiency”, Handbook of International Economics, vol 4, Jan 2014, 523-584.
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 1. Understanding crises: Evidence from financial crises and currency crises
Barry Eichengreen and Andrew K. Rose, 1999, Contagious Currency Crises: Channels of Conveyance, NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 29-56, National Bureau of Economic Research, Inc.
Bordo, M.D., B. Eichengreen, D. Klingebiel, and M.S. Martinez-Peria, 2001, Is the Crisis Problem Growing More Severe? Economic Policy, April
Fischer, Stanley, 2001, Exchange Rate Regimes: Is the Bipolar View Correct? Journal of Economic Perspectives, 15, 2 (Spring), 3-24. (Reprinted in Stanley Fischer, IMF Essays from A Time of Crisis, MIT Press, 2004.)
Barry Eichengreen and Andrew K. Rose, 2003, Does It Pay to Defend against a Speculative Attack?, NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 61-86, National Bureau of Economic Research, Inc.
Fischer, Stanley, 2004, Experience of and Lessons from Exchange Rate Regimes in Emerging Economies, in Monetary and Financial Integration in East Asia: The Way Ahead, Vol. 2, edited by Asian Development Bank. New York: Palgrave Macmillan Press, 91-138.
Barry Eichengreen, 2008. Exchange Rate Regimes and Capital Mobility: How Much of the Swoboda Thesis Survives?, NBER Working Papers 14100, National Bureau of Economic Research, Inc.
Michael D. Bordo and John S. Landon-Lane, 2010, The Global Financial Crisis of 2007-08: Is it Unprecedented?, NBER Working Papers 16589, National Bureau of Economic Research, Inc.
Carmen M. Reinhart and Kenneth S. Rogoff, 2011. From Financial Crash to Debt Crisis, American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
* Barry Eichengreen and Andrew K. Rose, 2011, Flexing Your Muscles: Abandoning a Fixed Exchange Rate for Greater Flexibility, NBER Chapters, in: NBER International Seminar on Macroeconomics 2011, pages 353-391, National Bureau of Economic Research, Inc.
Fabrizio Perri, 2012, Financial crisis – Lecture notes (Bocconi University)
Part 2. Models of currency crises:
First Generation:
Henderson, D. and Salant, S. 1978, Market anticipations of government policies and the price of gold. Journal of Political Economy 86, 627–48.
Krugman, P. 1979, A model of balance of payments crises, Journal of Money, Credit and Banking 11, 311–25.
Flood, R., and Garber, P. 1984, Collapsing exchange rate regimes: some linear examples, Journal of International Economics 17, 1–13.
Flood, R. and Marion, N. 1999, Perspectives on the recent currency crisis literature, International Journal of Finance and Economics 4, 1–26.
* Burnside, C., Eichenbaum, M. and Rebelo, S. 2001. Prospective deficits and the Asian currency crisis. Journal of Political Economy 109, 1155-98.
Second Generation:
Obstfeld, M. 1994, The logic of currency crises, Cahiers Economiques et Monétaires 43, 189–213.
Obstfeld, M. 1996, Models of currency crises with self-fulfilling features. European Economic Review 40, 1037–47.
Jeanne, O. 1997, Are currency crisis self-fulfilling? A test, Journal of International Economics 43, 263-286.
* Morris, S. and Shin, H. S., 1998, Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks, American Economic Review, American Economic Association, vol. 88(3), pages 587-97
Barro, R. J. and Gordon, D. B., 1983. A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
Third Generation:
Krugman, Paul, 1999, Balance Sheets, the Transfer Problem, and Financial Crises, International Tax and Public Finance , 6, 459-472.
Eichengreen, B. and Hausmann, R. 1999, Exchange rates and financial fragility. Working Paper No. 7418. Cambridge, MA: NBER.
Burnside, C., Eichenbaum, M., and Rebelo, S. 2001, Hedging and financial fragility in fixed exchange rate regimes. European Economic Review 45, 1151–93.
*Aghion, Philippe, Bacchetta, Philippe, and Banerjee, Abhijit, 2004, A Corporate Balance-Sheet Approach to currency crises, Journal of Economic Theory, 119, 6-30.
Hausmann Ricardo and Panizza Ugo, 2011. Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium, Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 1-35.
Part 1. Sovereign Debt Crises with self-fulfilling features
G.A. Calvo, 1988, Servicing the public debt: The role of expectations. American Economic Review 78(4), 647–66.
Cole, H.L. and T. Kehoe, 2000, Self-fulfilling debt crises. Review of Economic Studies, 67(1), 91–116.
* Corsetti, G. and L. Dedola, 2012. "The “Mystery of the Printing Press” Monetary Policy and Self-fulfilling Debt Crises," Discussion Papers 1424, Centre for Macroeconomics (CFM), revised Aug 2014. (For presentation, focus on the monetary model)
* Lorenzoni, G. and I. Werning, 2013, Slow moving debt crises, mimeo.
Part 2. Asymmetric information, limited contract enforcement and no trade result:
Eaton, Jonathan and Gersovitz, Mark, 1981. “Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
Bulow, Jeremy and Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
Michael, Tomz and Mark L. J. Wright, 2007. "Do Countries Default in “Bad Times," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 352-360, 04-05.
*Mark Aguiar and Manuel Amador, 2013. "Sovereign Debt: A Review," NBER Working Papers 19388, National Bureau of Economic Research, Inc.