Kim Clausing
Vollum 230, x7388
clausing@reed.edu
Fall 2007
Perhaps more than ever before, an international perspective is required to address the fundamental questions of macroeconomics. What determines the level of economic activity in an economy? What determines the pace of economic growth? What are the effects of monetary and fiscal policy? An international perspective not only improves understanding of these familiar questions, but it also allows one to consider important new questions. For instance, why do some countries run trade deficits or surpluses? Should such imbalances concern policy makers? Why do some countries encounter financial crises? What is the proper response to these crises?
Further, countries differ a great deal in terms of their exposure to the international economy, their level of economic development, their size, and their institutions. These differences are important for understanding how their economies function as well as what effects macroeconomic policies will have.
In this course, we will build a framework that allows us to address the many interesting questions of international macroeconomics. In this context, several important topics will be discussed, including the following.
You should purchase Krugman and Obstfeld, 7th edition. Substantial additional material will come from other sources, on reserve in the library.
I will hold regular office hours on Tuesdays from 1 to 2:30pm and on Thursdays from 9:30 to 11am. You can also reach me by email to schedule other times.
Evaluation will be based on a midterm, a final, a paper, and participation in discussion. Mark the following days in your calendar.
Midterm Exam October 12
Short Paper due November 16
Final Exam December 11, 9am-noon
There will be a handout on the paper several weeks before it is due. Late papers are penalized. To help you prepare for the exams, problem sets will be given out at times. If you would like them to be reviewed, you will need to hand them in by the due date.
Readings marked with an * are optional.
Introduction(August 27 and 29)
Rodrik, Dani. “How Far will International Economic Integration Go?” Journal of Economic Perspectives. 14 (1). Winter 2000. 177-186.
Obstfeld, Maurice. “The Global Capital Market: Benefactor or Menace?” Journal of Economic Perspectives. 12(4). Fall 1998. 9-30.
* Fischer, Stanley. “Globalization and Its Challenges.” American Economic Review. May 2003. 1-30.
National Income Accounting and the Balance of Payments (August 31)
Krugman and Obstfeld, c.12
Intertemporal Trade and the Current Account (September 5 and 7)
Krugman and Obstfeld, pp. 155-7, 170-3
Sachs and Larrain. Macroeconomics in the Global Economy. Chapter 21, "Tradable and Nontradeable Goods."
The U.S. Current Account Deficit (September 10)
Mann, Catherine. 2002. “Perspectives on the U.S. Current Account Deficit and Sustainability.” Journal of Economic Perspectives. 16(3). Summer. 131-52.
Quiggin, John. 2004. “The Unsustainability of U.S. Trade Deficits.” The Economists’ Voice. 1(3). 1-10.
* Backus, D. et al. 2006. “Current Account Fact and Fiction.” Working Paper. May.
Exchange Rates and Money (September 12, 14, and 16) Note special class on Sep 16, 2-4pm.
Krugman and Obstfeld, c. 13, 14
Rogoff, Kenneth, "Perspectives on Exchange Rate Volatility," in International Capital Flows, Feldstein, Martin, ed.1999, 441-53.
* Froot, Kenneth and Thaler, Richard. "Anomalies: Foreign Exchange". Journal of Economic Perspectives. Summer 1990. 179-192.
Prices and Exchange Rates in the Long Run (September 21 and 24)
Krugman and Obstfeld, c.15
"Sizzling: The Big Mac Index." The Economist. 7 July 2007.
"Misleading Misalignments; Economics Focus.” The Economist. 23 June 2007.
Taylor, Alan M. and Mark P. Taylor. 2004. “The Purchasing Power Parity Debate.” Journal of Economic Perspectives. 18(4). 135-58.
* Obstfeld, Maurice and Rogoff, Kenneth. “The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?” NBER Working Paper no. 7777. July 2000. Esp. 33-41.
Output and Exchange Rates in the Short Run (September 26 and 28, October 1 and 3)
Krugman and Obstfeld, c.16
"Of Congress, cuts, and currencies." The Economist. 21 October 1995. p.82.
* Krugman, Paul. "Exchange Rate Policy: the J-curve, the Fire Sale, the Hard Landing." American Economic Review. May 1989, 31-35.
* Bergsten, C. Fred. 2004. Dollar Adjustment: How Far? Against What? Washington; Institute for International Economics.
Fixed Exchange Rates and Foreign Exchange Intervention (October 5 and 8)
Krugman and Obstfeld, c.17
Midterm Exam: October 10
Currency and Financial Crises (October 12 and 22)
Summers, Lawrence H. 2000. "International Financial Crises: Causes, Prevention, and Cures.” American Economic Review 90. 1-16.
Mishkin, Frederic S. 1999. “Global Financial Instability: Framework, Events, Issues” Journal of Economic Perspectives. Volume 13 (4). 3-20.
Krugman, Paul. “What Happened to Asia?” January 1998.
* Roubini, Nouriel. 2004. Bailouts or Bailins: Responding to Financial Crises in Emerging Markets. Washington: Institute for International Economcs. Chapter 2.
* Frankel, Jeffrey A. 2000. “The Asian Model, the Miracle, the Crisis, and the Fund.” In Krugman, Paul, ed. Currency Crises. 327-337.
The International Monetary System in History (October 24, 26, and 29)
Krugman and Obstfeld, c.18
Hume, David. "On the Balance of Trade." in Richard Cooper, ed. International Finance. Baltimore: Penguin Books, 1969.
J.M. Keynes. "The Economic Consequences of Mr. Churchill," in Essays in Persuasion. New York: W.W. Norton & Co. 1963.
Temin, Peter. "Lecture 1." Lessons from the Great Depression. Cambridge: MIT Press, 1990.
* Cooper, Richard. "The Gold Standard: Historical Facts and Future Prospects." Brookings Papers on Economic Activity. 1982:1, 1-45.
Fixed v. Flexible (October 31, November 2 and 5)
Krugman and Obstfeld, c. 19
The Case for Flexible Exchange Rates
Krugman, Paul. Exchange Rate Instability. 1989. chapter 1: "The Case for Exchange Rate Flexibility."
Obstfeld and Rogoff. "The Mirage of Fixed Exchange Rates." Journal of Economic Perspectives. Fall 1995. 73-96.
* Friedman, Milton. "The Case for Flexible Exchange Rates." in Essays in Positive Economics. (1953).
The Case for Fixed Exchange Rates
Williamson, John. "On the System in Bretton Woods". American Economic Review. May 1985. 74-79.
Reinhart, Carmen. “The Mirage of Floating Exchange Rates.” American Economic Review. 90 (2). May 2000. 65-70.
Currency Boards and Dollarization
Dornbusch, Rudi. “Fewer Monies, Better Monies.” American Economic Review. 91(2). May 2001. 238-42.
Rogoff, Kenneth. “Why Not a Global Currency?” American Economic Review. 91(2). May 2001. 243-247.
Alesina, Alberto, and Robert Barro. “Dollarization.” American Economic Review. 91(2). May 2001. 381-5.
The Case for Pragmatism
Frankel, Jeffrey A. “No Single Currency Regime is Right for All Countries or At All Times.” Essays in International Finance no. 215. August 1999.
Calvo, Guillermo A. and Frederic S. Mishkin. 2003. “The Mirage of Exchange Rate Regimes for Emerging Market Countries.” Journal of Economic Perspectives. 17(4). Fall. 99-118.
* Fischer, Stanley. “Exchange Rate Regimes: Is the Bipolar View Correct?” Journal of Economic Perspectives. 15(2). Spring 2001. 3-24.
* Husain, A.M., A. Mody and K. S. Rogoff, 2005. “Exchange Rate Regime Durability and Performance in Developing versus Advanced Economies”. Journal of Monetary Economics. 52(1). 35-64.
European Monetary Union (November 7 and 9)
Krugman and Obstfeld, c.20
Main EU web site: http://europa.eu/
Main EU Euro web site: http://ec.europa.eu/euro/entry.html
and European Central Bank web site: http://www.ecb.eu/home/html/index.en.htmlRose, Andrew, and Eric van Wincoop. “National Money as a Barrier to International Trade: The Real Case for Currency Union.” American Economic Review. 91(2). May 2001. 386-390.
* Alesina, Alberto and Roberto Perotti. 2004. “The European Union: A Politically Incorrect View.” Journal of Economic Perspectives. 18(4). 27-48.
* Blanchard, Olivier. 2004. “The Economic Future of Europe.” Journal of Economic Perspectives. 18(4). 3-26.
Analysis: How are the Euro-13 doing? (November 12)
Lane, Philip. 2006. “The Real Effects of European Monetary Union.” Journal of Economic Perspectives. 20(4). 47-66.
Dominguez, Kathryn. 2006. “The European Central Bank, the Euro, and Global Financial Markets.” Journal of Economic Perspectives. 20(4). 67-88.
“Strength to Strength.” the Economist. 26 April 2007.
* Posen, Adam S. 2005. The Euro at Five: Ready for a Global Role. Washington: Institute for International Economics.
Case: Who Should Join the EMU? (November 14)
Macroeconomic Policy Adjustment and Policy Coordination (Nov. 16 and 19)
Outdated; don’t’ use; use subset of c.19 here?
Fieleke, Norman. "Economic Interdependence between Nations: Reason for Policy Coordination?" New England Economic Review. May/June 1988.Feldstein, Martin. "Thinking about International Economic Coordination." Journal of Economic Perspectives. Spring 1988. 3-13.
Sarno, Lucio and Mark Taylor. 2001. “Official Intervention in the Foreign Exchange Market: Is It Effective and, if so, How Does it Work?” Journal of Economic Literature. September. 839-68.
Proposals for International Reform
Krugman and Obstfeld, c.22
The Old International Financial Institutions (November 21)
Stiglitz, Joseph. “The Insider: What I Learned at the World Economic Crisis.” The New Republic. 17 April 2000. And Replies by Rudi Dornbusch, Alice Amsden, and others. The New Republic. Letters. 29 May 2000.
Krueger, Anne. “Whither the World Bank and the IMF?” Journal of Economic Literature. December 1998. pp. 1983-2020.Graham, Carol and Paul Robert Masson. “The IMF’s Dilemma in Argentina: Time for a New Approach to Lending?” Brookings Policy Brief no. 111. November 2002.
New International Financial Institutions (November 26)
Rogoff, Kenneth. 1999. “International Institutions for Reducing Global Financial Instability.” Journal of Economic Perspectives. Volume 13 (4). 21-42.
Fischer, Stanley. 1999. “On the Need for an International Lender of Last Resort.” Journal of Economic Perspectives. Volume 13 (4). 85-104.
Morgan, John. 2007. “Reforming the IMF.” Economists’ Voice. October.
Capital Controls (November 28)
DeLong, J.B. 2004. “Should We Support Untrammelled International Capital Mobility? Or are Capital Controls Less Evil than We Believed?” Economists’ Voice. 1(1). 1-7.
Bhagwati, J. “The Capital Myth: The Difference Between Trade in Widgets and Dollars.” Foreign Affairs. May/June 1998. 7-12.
Edwards, Sebastian. 1999. “How Effective are Capital Controls?” Journal of Economic Perspectives. Volume 13 (4). 65-84.
The Tobin Tax (November 30)
Tobin, James. “A Proposal of International Monetary Reform.” Eastern Economic Journal. July/October 1978. 4(3-4) 153-9.
Frankel, Jeffrey. “How Well Do Foreign Exchange Markets Function: Might a Tobin Tax Help?” NBER Working Paper no. 5422. January 1996.
Developing Countries and Debt (December 3 and 5)
Arslanalp, S. and P. B. Henry. 2006. “Policy Watch: Debt Relief.” Journal of Economic Perspectives. 20(1). 207-22.
“A Victory by Default? Argentina’s Debt Restructuring” Economist. 5 March 2005.
“Tucking Into Good Times; Argentina” Economist. 23 December 2006.Sachs, J. “What is Good for the Poor is Good for America.” Economist. 12 July 2001.
* Rogoff, Kenneth. "Dealing with Developing Country Debt in the 1990s." The World Economy. July 1992. 475-486.
* Brainard, S. Lael and Allison Driscoll. “Making the Millennium Challenge Account work for Africa.” Brookings Institution Policy Brief #123. September 2003.