Warning: this course was last taught in 2009/2010. It is now being taught by Agnès Bénassy-Quéré and Isabelle Méjean [].

The second part of the course covers open macroeconomics and international finance: the intertemporal approach to the balance of payments, global capital flows and the allocation puzzle, determinants of real and nominal exchange rates (the monetary model, the portfolio model, the Dornbusch ‘overshooting’ model, equilibrium exchange rates, pricing-to-market), first to third generation currency crises models (Krugman, Obstfeld, Chang and Velasco).

These theoretical tools help analyze policy choices in developed countries (foreign-exchange interventions, policy coordination) and in emerging market economies (capital controls, exchange rate regime choice) and shed light on the ongoing G-20 discussion on global imbalances.

 


Lesson #6: Intertemporal current-account equilibrium

  • The balance of payments and capital movements: definitions
  • Intertemporal approach of the balance of payments: a two-good model; consumption substitution
  • Savings / investment balance and the Feldstein-Horioka paradox
  • International capital flows: the Lucas paradox; the allocation puzzle
  • The policy discussion on global imbalances

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Lesson #7: The exchange rate

  • The foreign-exchange market
  • Monetary models of the exchange rate
  • Purchasing-power parity and the Balassa-Samuelson effect
  • Interest-rate parity
  • The portfolio-choice model

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Lesson #8: Exchange-rate dynamics

  • The monetary approach
  • Exchange rate overshooting: Dornbusch (1976)
  • Pricing to market and the J curve; Marshall-Lerner-Robinson
  • Hysteresis effects: Baldwin-Krugman (1989)
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Lesson #9: Exchange-rate crises

  • Balance-of-payment crises: Krugman (1979); application to Mexico, 1994, and Pakistan, 2008
  • Exchange-rate crises with multiple equilibria: Obstfeld (1996); application to France (1993)
  • Twin exchange-rate and banking crises: Chang and Velasco (2001); application to Iceland, 2008
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