BGP-620: International Macroeconomics

Course Preview, Shopping Day

Prof. Jeffrey Frankel January 19, 2017

BGP-620: International Macroeconomics

[formerly ITF 220: The Economics of International Financial Policy]

• I.e., Open-economy macroeconomics

• Professor: Jeffrey Frankel

– Office hours: Mon.& Tues., 3:00-4:00.

• Pre-requisites: – Introductory micro-economics

– Intermediate macro-economics

– Comfort with quantitative thinking, esp. algebra

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• Prerequisite for BGP 620:

standard Intermediate macroeconomics.

For example: API 121 Macro Theory & Policy Spring Jeff Fuhrer

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Courses at more advanced levels than BGP-620:

• API-120 Fall JF Advanced Macro for Open Economy I

• API-119 Spring Filipe Campante + JF Advanced Macro for Open Economy II

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Other useful / relevant courses

• Econometrics

• Finance –

– API-141 Fall Akash Deep Finance

– BGP-670 Spring Carmen Reinhart Financial Crises

• International trade --at a much less technical level,

– BGP-625 Fall Robert Lawrence Political Economy of Trade

– BGP-225 Spring Robert Lawrence Future of Globalization

& Larry Summers

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Substitutes for BGP-620

• In the Economics Department (FAS):

- Ec 1544 Spring Gita Gopinath Foundations of International Macroeconomic Policy (intermediate) - Ec 1545 Fall Ken Rogoff International Financial and Macroeconomic Policy (advanced) -- Ec 1530 Not offered International Monetary Economics

Topics covered in BGP-620

I) ELASTICITIES & THE TRADE BALANCE

II) THE KEYNESIAN MODEL OF INCOME

III) MONEY AND THE BALANCE OF PAYMENTS

IV) GLOBALIZATION OF FINANCIAL MARKETS

V) FISCAL & MONETARY POLICY UNDER INTERNATIONAL CAPITAL MOBILITY

VI) INTERDEPENDENCE & COORDINATION

VII) SUPPLY, INFLATION & MONETARY UNION

VIII) EXPECTATIONS, MONEY & DETERMINATION OF THE EXCHANGE RATE

Professor Jeffrey Frankel, Kennedy School, Harvard University

Some applied illustrations

of international economic questions that we study in BGP-620

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Why has the US trade balance shown a downward trend since 1965?

↑ Surplus

↓ Deficit

with temporary improvements in 1990-91 & 2008-09?

Bussière, Callegari, Ghironi, Sestieri, & N.Yamano, 2013, "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009."

Why did global trade collapse in the 2008-09 global recession?

(much more than usual)

2009

Has fiscal austerity helped, as a response to the euro crisis?

Source: P.Krugman, 10 May 2012, via R.Portes, May 2013.

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Why are MacDonald’s hamburgers

expensive in Norway & Switzerland?

but cheap in India & Ukraine?

http://www.economist.com/news/finance-and-economics/21608647-our-flame-grilled-guide-currencies-suggests-dollar-getting-dearer

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Why has China been losing foreign exchange reserves since mid-2014?

June 2014

Dec.2016

Decline since peak: $1.0 trillion

Why did Mexico used

to suffer a currency crisis every

6 years?

Mexican inflation, 1970-2011

Changes in the $ value of the peso, 1970-2011

Hyperinflation:

Why did Zimbabwe’s inflation rate reach 2,600%

per month in mid-2008?

After Fed “taper talk” in May 2013, why did capital flows to Emerging Markets reverse?

Powell, Jerome. 2013. “Advanced Economy Monetary Policy and Emerging Market Economies.” Speech at the Federal Reserve Bank of San Francisco Asia Economic Policy Conference, November . http://www.frbsf.org/economic-research/publications/economic-letter/2014/march/federal-reserve-tapering-emerging-markets/