International
Ec0nomics
2003-2004
This sequence develops core models of international finance and
open-economy macroeconomics, and surveys selected current research topics in
the field. Topics treated in the first semester include: the intertemporal
approach to the current account; international risk sharing and capital flows;
home bias and international CAPM; the determination of real exchange rates and
purchasing power parity; Empirical models of nominal exchange rates; sovereign
debt crises; globalization.
This course covers
advanced topics in open-economy monetary economics and in international
finance. Topics treated include: money and exchange rate regimes; changes of
regimes; sticky prices and stabilization policies; optimal policies,
accommodation and credibility; economics of currency areas; the new open
economy macroeconomics.
Econ280B Fall 2003
Pierre-Olivier Gourinchas
Classes will be held
every Thursday from 12 to 2. Room: 639Evans
Class participants
will be asked to choose one among a small selection of papers and write a short
report. Depending on the paper, you will be asked to provide critical missing
intermediate steps, re-calibrate a simulation model or check core empirical
results. The short report should be at most 10-12 double
space pages. You should devote 1 to 3 pages to a critical assessment of the
paper, establishing its value added to the literature in the manner of a
referee report.
The
textbook for the course is Foundations of International Macroeconomics, by
Maurice Obstfeld and Kenneth Rogoff, MIT Press, October 1996. It is available
at the Student
Store, as
well as at http://www.amazon.com/ and http://www.barnesandnoble.com/.
Another useful references is "International Macroeconomics and Finance: Theory
and Empirical Methods" by Nelson Mark, Blackwell Publisher,
September 2001.
The following
reading list gives a guide to the material that will be covered in the course.
Most articles are available on-line (follow the links). Articles not available
online will be available either in the Reserve.
The web page for
this class is accessed through Blackboard. Students need to create an account
in Blackboard, then enroll
in the course.
The course web page
can be accessed via the department web page (www.econ.Berkeley.edu) or via http://blackboard.Berkeley.edu .
This syllabus is available under course information.
(August 28 and September 4)
*Obstfeld and Rogoff chapters 1 and 2;
*Obstfeld M. and K. Rogoff, "The Intertemporal Approach to the Current
Account", in Handbook of International Economics, Gene Grossman and
Ken Rogoff, ed, North Holland, 1995, also available as NBER working paper 4893.
*Glick R. and
K. Rogoff, "Global versus Country specific Productivity Shocks and the
Current Account", Journal of Monetary Economics (35), pp159-192,
1995;
*Kraay, A. and J. Ventura, "Current Accounts in Debtor and
Creditor Countries", Quarterly
Journal of Economics, November 2000.
*Ventura
J., “Towards a Theory of Current Accounts”, mimeo MIT, 2002.
Sachs
J., "The Current Account and Macroeconomic Adjustment in the
70’s" Brookings Papers on Economic Activity (1), pp201-268, 1981;
Feldstein, M. and C. Horioka, "Domestic
Savings and International Capital Flows", Economic Journal 90 (June):
314-29, 1980
Baxter
M. and M. Crucini, “Explaining Saving –Investment Correlations”, American
Economic Review June 1993, p 416-436.
Frankel, J., "Measuring
International Capital Mobility", American Economic Review Papers and
Proceedings, May 1992, 197-202.
Taylor, A., "International Capital Mobility in History:
the Savings-Investment Relationship", NBER WP 5743
Mercereau B.,
"Does Wall Street Matter? Role of Stock Markets in Current Account
Dynamics: a Time Series Approach", mimeo Yale University.
Nason
J.and J. Rogers, “The Present-Value Model of the Current Account Has Been
Rejected: Round Up the Usual Suspects”, mimeo, Federal Reserve Board, May 2002.
Gourinchas,
P-O and H. Rey, “International Financial Adjustment”, May 2003, mimeo
Princeton.
(September 11 and 18)
*Obstfeld and Rogoff, chapter 5.
*Cole H. and M. Obstfeld, " Commodity Trade and International Risk Sharing: How much do Financial Markets Matter?", Journal of Monetary Economics 28 (August): 3-24, 1991.
*Van Wincoop, E, "How Big are Potential Gains from International Risk Sharing?", Journal of International Economics 47, 1999, 109-135.
*Obstfeld, M.,
"Risk-Taking, Global Diversification and Growth", American
Economic Review 84, (December): 1310-29, 1994
*Lucas R., "Interest Rates and Currency Prices
in a Two-Country World", Journal of
Monetary Economics, 10, 335-59, 1982.
*Svensson, L.: "Trade in
Risky Assets", American Economic Review, pp. 375-394, (June) 1988
*Martin P. and H.
Rey: "Financial Super-Markets: Size matters for asset
trade", CEPR DP 2232, 1999
Martin P. and H. Rey: "Financial
Integration and Asset Returns", European Economic Review June 2000,
vol 44/7, p. 1327-1350
Obstfeld, M., “Are Industrial Country Consumption Risks Globally Diversified?”, in L. Leiderman and A. Razin, eds, Capital Mobility, The Impact on Consumption, Investment and Growth, Cambridge University Press, New York, 1994.
Helpman E. and A. Razin, chapter 5 in A Theory of International Trade
under Uncertainty, Academic Press 1978.
Cole,
H.: "Financial Structure and International Trade", International
Economic Review, May 1988.
Davis
S. and J Nalewaik and P. Willen, “On the Gains to International Trade in
Risky Financial Assets”, mimeo Chicago GSB, September 2001
(September 25 and October 2)
*Lewis K., "Puzzles in International Financial Markets" in Handbook
of International Economics, Gene Grossman and Ken Rogoff, ed, North
Holland, 1995 also NBER WP 4951;
*Baxter M, U. Jermann and R. King, “Nontraded Goods, Nontraded factors and International Nondiversification”, Journal of International Economics, April 1998, 211-229.
*Obstfeld M. and K.
Rogoff, "The Six Major Puzzles in International Macroeconomics: Is There
a Common Cause?", NBER Macro Annual 2000, also NBER working paper 7777.
*Lewis K.,
"International Home Bias in International Finance and Business
Cycles", NBER WP #6351, January 1998, or with the title
""Trying to Explain Home Bias in Equities and Consumption"
Journal of Economic Literature 37, June 1999, 571-608.
Lewis
K. (1996), "What can explain the apparent lack of consumption risk
sharing?" Journal of Political Economy 104 (April): 267-97.
Baxter M. and U. Jerman, 1997, "The international diversification puzzle is worse than you think", American Economic Review, 87(March) and the appendix.
Julliard C., “The International Diversification Puzzle is NOT worse than you think”, mimeo, Princeton University, June 2002.
Tesar L. and I. Werner, 1995, "Home Bias and High Turnover", Journal of International Money and Finance 14 (August): 467-92 1995.
French
K. and J. Poterba, 1991, "Investor diversification and international
equity markets”, American Economic Review
81, 222-226.
Dumas, B and B. Solnik, "The world price of foreign exchange risk", Journal of Finance, 1995,. Vol 50 (2) p 445-79.
Pavlova A and R. Rigobon, “Asset Prices and Exchange Rates”, mimeo Sloan School, 2003
Dellas, H and A. Stockman, “International portfolio nondiversification and exchange rate variability”, Journal of International Economics, 26(3-4), pp271-89, May 1989
(October 9 and 16)
*Obstfeld–Rogoff , 8.2.7
*Meese R. and K. Rogoff, “Empirical Exchange Rate Models of the Seventies”, Journal of International Economics 14 3-24, 1983
*Mark, N. 1995. Exchange Rates and Fundamentals: Evidence on long-horizon predictability. American Economic Review 85: 201-218.
*Flood R. and A. Rose,1995. Fixing exchange rates: A Virtual Quest for Fundamentals", Journal of Monetary Economics, 36: 3-37.
*Fama, E., 1984. Forward and spot exchange rates. Journal of Monetary Economics, vol. 14, 319-338.
*Frankel J. and K. Froot, 1989. Forward discount bias: is it an exchange risk premium? Quarterly Journal of Economics.
*Gourinchas P. and A. Tornell, "Exchange Rate Puzzles and Distorted Beliefs," mimeo Princeton University, June 2003
*Gourinchas P-O and H. Rey,
“International Financial Adjustment”, mimeo Princeton University 2003.
*Froot
K. and R. Thaler, 1990. Anomalies: Foreign Exchange. Journal of Economic Perspectives 4: 179-92.
*Jeanne O. and A. Rose, "Noise trading and exchange rate regime", Quarterly Journal of Economics 2001, also NBER WP 7104.
*Brandt M., Cochrane J. and P. Santa Clara, 2001. "International Risk Sharing is better than you think (or exchange rates are much too smooth) ", NBER WP 8404.
Lewis K., 1989. Changing beliefs and systematic rational forecast errors with evidence from foreign exchange, American Economic Review 79: 621-36.
Backus D., S. Foresi, and
C. Telmer, 1998. “Affine models of currency pricing: Accounting for the
forward premium anomaly”
Frankel
J. and K. Froot, 1987. Using survey data to test standard propositions
regarding exchange rate expectations. American
Economic Review 77: 133-153.
Frankel J and A. Rose, "Empirical research on Nominal Exchange
Rates", in Handbook of International Economics, Gene Grossman and
Ken Rogoff, ed, North Holland, 1995 also NBER WP 4865;
Duarte M. and A. Stockman, 2001. Rational Speculation and Exchange Rates, NBER WP 8362.
Alvarez
F., Atkeson, A. and P. Kehoe, 2001. Volatile Exchange Rates and the Forward
Premium Anomaly: A Segmented Asset Market View
Inoue A. and L. Kilian, “In-Sample or Out-of-Sample Tests of Predictability: Which One Should We Use?”, mimeo European Central Bank, July 2002.
Kilian L. and M. Taylor, “Why is it so Difficult to Beat the Random Walk Forecast of Exchange Rates?”, CEPR discussion paper 3024.
Backus D. and G. Smith, “Consumption and Real Exchange Rates in Dynamic Economies with Nontraded Goods”, Journal of International Economics, 25, 1993.
Bacchetta P. and E. van Wincoop, “Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?”, NBER WP9498, Feb 2003
Cheung
Y-W., M. Chinn and A. Pascual, “Empirical Exchange Rate Models of the
Nineties: Are any Fit to Survive?”, mimeo UCSB, 2003
(October 23).
Guest Lecturer: Rich Lyons (Haas Business School)
*Evans
M. and R. Lyons, 2001. Order Flow and Exchange Rate Dynamics, NBER WP7317,
and Journal of Political Economy
*Froot K. and T. Ramadorai, 2001. “Currency Return, Institutional Investor Flows and Exchange-Rate Fundamentals”
Lane P. and G. M. Milesi-Ferretti, "The
External Wealth of Nations: Measure of Foreign Assets and Liabilities for
Industrial and Developing Countries," International Monetary Fund Working
Paper WP/99/115, August 1999
Coval J. and T.
Moskowitz, "The Geography of Investment: Informed Trading and Asset
Prices", CRSP WP 502
Portes, R. and H.
Rey:
"Determinants of Cross-Border Equity Flows: the Geography of
Information", former version CEPR DP 2225 and NBER WP 7336.
Kang J-K. and R. Stulz, 1997: "Why is there home bias? An analysis of Foreign Portfolio Equity Ownership in Japan", Journal of Financial Economics, 46(1), pp. 3-28.
Brennan M. and H. Cao, 1997, “International portfolio investment flows”, Journal of Finance 52, 1851-1880.
Lyons R, 2001. The Microstructure Approach to Exchange Rates, MIT Press, chapter 7.
Rime D., 2001. Private or Public Information in the Foreign Exchange Markets? An Empirical Analysis.
Gordon R. and L.
Bovenberg: "Why is Capital so Immobile Internationally? Possible
Explanations and implications for Capital Income Taxation", American
Economic Review 86, December1996, 1057-1075
Warnock F. and C. Cleaver, “Financial Centers and the Geography of Capital Flows”, International Finance Discussion Papers, Federal Reserve Board, 2002-722, 2002.
(October 30)
*Obstfeld and Rogoff Chapter 4
*Engel C. and J.
Rogers, "How Wide is the Border?" American Economic Review
1996 Dec, pp1112-1125;
*Rogoff K. "The
Purchasing Power Parity Puzzle", Journal of Economic Literature
Vol. 34, No. 2. (Jun., 1996), pp. 647-668;
*Engel
C. "Accounting for US Real Exchange Rate Changes," Journal of
Political Economy 107(3), June 1999, pages 507-38;
*Imbs J, H. Mumtaz, M.
Ravn and H. Rey, “PPP Strikes Back: Aggregation and the Real Exchange
Rate”, NBER WP 9372, Dec 2002
*Godberg P. and F. Verboven, “The Evolution of Price Dispersion in European Car Markets,” Review of Economic Studies, October 2001.
*Dumas B, "Dynamic
Equilibrium and the Real Exchange Rate in a Spatially Separated World",
Review of Financial Studies, vol 5(2), 1999, pp153-180.
Froot K. and K. Rogoff, "Perspectives on PPP and Long-Run Real
Exchange Rates", in Handbook of International Economics, Gene
Grossman and Ken Rogoff, ed, North Holland, 1995 also NBER WP 4952;
Dornbusch R., S.
Fisher and P. Samuelson,"Comparative Advantage, Trade, and Payments
in a Ricardian Model with a Continuum of Goods", American Economic
Review Vol. 67, No. 5. (Dec., 1977), pp. 823-839
Gourinchas P-O., "What do
we learn from job flows" NBER Macroeconomics Annual, B. Bernanke
and J. Rotemberg eds, MIT Press, 1999
Goldberg
P. and M. Knetter "Goods Prices and Exchange Rates: What have we
learned?" Journal of Economic Literature 35(3), September 1997,
pages 1243-72
Canzoneri M., Cumby R. and B. Diba, "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries", Journal of International Economics, Volume: 47, Issue: 2, April 1, 1999.
Crucini, M., C. Telmer and M. Zachariadis, “Understanding European real exchange rates," mimeo, CMU, 2001.
(November 6 and 13)
*Obstfeld and Rogoff, Chapter 6;
*Bulow J. and K.
Rogoff, "A constant recontracting model of sovereign debt" Journal
of Political Economy Vol. 97, No. 1. (Feb., 1989), pp. 155-178.
*Bulow J. and K.
Rogoff, "Sovereign Debt: is to forgive to forget", American
Economic Review Vol. 79, No. 1. (Mar., 1989), pp. 43-50
*Kletzer
K. and B. Wright, “Sovereign Debt as Intertemporal Barter”, American
Economic Review, 90, June 2000.
*Kraay, A., Loayza,
N., Serven, L. and J. Ventura "Country Portfolios", NBER
WP 7795 July 2000
Eaton J. and M.
Gersovitz, " Debt with Potential Repudiation: Theoretical and Empirical
Analysis", Review of Economic Studies, Vol. 48, No. 2. (Apr.,
1981), pp. 289-309;
Sachs Jeffrey, "Theoretical Issues in International
Borrowing", Princeton Essays in International Finance, 1984
Atkeson A.,
"International Lending with moral hazard and risk of repudiation", Econometrica,
Vol. 59, No. 4. (Jul., 1991), pp. 1069-1089
Cole H. and P.
Kehoe, "Reviving Reputation Models of International Debt", Federal
Reserve Bank of Minneapolis Quarterly Review (Winter 1997)
Cole H. and T. Kehoe "Self Fulfilling Debt Crises", Review of Economic Studies 67(1), January 2000, pages 91-116, also Federal Reserve Bank of Minneapolis Staff Report 211, July 1998
Eaton ,J. and R. Fernandez, "Sovereign Debt", in Handbook
of International Economics, Gene Grossman and Ken Rogoff, ed, North
Holland, 1995; also NBER working paper
5131;
Wright
M., “Reputations and Sovereign Debt”, mimeo Chicago, November 2001.
Kehoe P. and F.
Perri, "International Business Cycles with Endogenous Incomplete
Markets", Econometrica, May 2002 70, p907-928.
(November 20 and December 4)
*Gourinchas P-O. and O. Jeanne
“On the Benefits of Capital Account Liberalization for Emerging Economies”,
mimeo Princeton, August 2002.
*Acemoglu D, Jonhson S. and J
Robinson, “The Colonial Origins of Comparative Development: An Empirical
Investigation”, NBER Working paper 7771, June 2000.
*Acemoglu D. and J.
Ventura, “The World Income Distribution”, Quarterly Journal of Economics,
May 2002.
*Matsuyama, K. "Financial Market globalization and endogenous inequality of nations", mimeo Northwestern, 2001.
Blanchard
O. and F. Giavazzi: "Current Account Deficits in the Euro Area. The
End of the Feldstein Horioka Puzzle?", forthcoming Brookings Papers on
Economic Activity, Fall 2002.
Edison, H., M. Klein, L.
Ricci and T. Sloek, “Capital Account Liberalization and Economic
Performance: Survey and Synthesis”, NBER Working paper 9100, August 2002.
Rodrik
D., Has Globalization Gone too Far?, Institute for International Economics,
Washington, DC, 1997.
Bekaert
G., C. Harvey and C. Lundblat, “Does Financial Liberalization Spur Growth”,
mimeo Duke University, May 2002.
Rajan
R. and L. Zingales, “The Great Reversals: The Politics of Financial
Development in the 20th Century”, mimeo university of Chicago, December 2001.
Kaufman D., A. Kraay
and P. Zoido-Lobaton, “Governance Matters”, mimeo World Bank
Parente S. and E. Prescott, Barriers to Riches, MIT Press, 2000.