INTERNATIONAL
MONETARY TRANSACTIONS
Professor Richard H. Clarida
Spring 2006
The course meets once a week. The two required textbooks are Foundations of
International Macroeconomics by Obstfeld and Rogoff and The Economics of
Exchange Rates by Sarno and Taylor. Students should also be familiar with
basic econometric tools such instrumental variables and GMM estimation and the
concepts of a stationary time series, unit roots and cointegration. An
excellent reference is Time Series Analysis by James Hamilton as well
Econometrics by Hayashi. Required readings from journals should be
obtained from J Stor, Science Direct, or NBER. Readings not available in that
fashion will be on the course web site. There will be a mid-term exam and a
final.
I.
Overview of International Macroeconomics and Finance; National Income
and Balance of Payments Accounting; International Parity
Conditions.
*Dornbusch, R., Open Economy Macroeconomics, Chapter 2, Basic Books,
1980.
*Sarno and Taylor, TEER, Chapter 2 and 3.
*Cumby, R. and M. Obstfeld, "International
Interest Rate and Price Level Linkages Under Flexible Exchange Rates," in
Exchange Rates: Theory and Practice , J.F.Bilson and R. Marston eds.,
Chicago; NBER Working Paper No. 921.
Engel, C., “The Forward Discount Anomaly and the
Risk Premium,”NBER No. 5312.
Backus, D. S. Foresi, C. Telmer,
“Interpreting the Forward Premium Anomaly,” Canadian Journal of Economics,
Vol 28, November 1995.
Backus, D. S. Foresi, C. Telmer,” Affine Models of Currency Pricing,” Working
Paper 5263, NBER 1996.
Crucini, M. and M. Shintani, “Persistence in Law-of-One-Price Deviations:
Evidence from Micro-data,” mimeo, Vanderbilt University, 2004.
*Class Notes
II.
Exchange Rate Determination
*Obstfeld, M. and K. Rogoff, FIM, Chapters 9 and 10.
*Sarno and Taylor, TEER, Chapter 4.
*Mussa, M., "A Model of Exchange Rate Dynamics,"
Journal of Political Economy, (90) 1982.
*Dornbusch, R., "Expectations and Exchange Rate
Dynamics," Journal of Political Economy, (84) 1976, December.
*Kouri, P., "The Exchange Rate and the Balance of Payments in the Short Run and
Long Run," Scandanavian Journal of Economics,
(78)
1976, Special Issue.
*Clarida, R. and J. Gali,
"Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?",
NBER No. 4658 Carnegie-Rochester Conference on Public
Policy, (42) 1994.
*Eichenbaum, M. and C.
Evans, "Some Empirical Evidence on the Effects of Monetary Policy Shocks on
Exchange Rates," Quarterly Journal of Economics,
(110) 1995.
*Clarida,
R., “ Notes on Interest Rate Rules and Exchange Rate Dynamics”.
*Clarida, R., “The Empirics of Monetary Policy Rules in Open Economies, NBER
Working Paper No.
*Class Notes
III.
The Intertemporal Approach to the Current Account
*Obstfeld, M. and K. Rogoff, FIM, Chapters 1, 2, and 3.
*Sachs, J., "The Current Account in the
Macroeconomic Adjustment Process," Brookings Papers on Economic Activity,
1981, 201-268.
*Blanchard, O., "Debt, Deficits,
and Finite Horizons," Journal of Political Economy, (93) 1985,
223-247.
*Sheffrin, S. and W. Woo, "Present Value Tests of an Equilibrium Model of the
Current Account," Journal of Int.Economics, 1990.
*Gourinchas, P. and H. Rey, “International
Financial Adjustment, mimeo, www.princeton.edu/~pog
Svensson, L. and A. Razin, "The Terms of
Trade and the Current Account," Journal of Political Economy, (91) 1983,
97-125.
Backus, D., P. Kehoe and F.
Kydland, "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?,"
American Economic Review, (84) 1994, March.
Baxter, M. and M. Crucini, "Explaining
Savings-Investment Correlations," American Economic Review, (83) 1993,
June.
*Class Notes
IV.
Nontraded Goods, Internal Balance, and Capital Mobility
*Obstfeld, M. and K. Rogoff, FIM, Chapter 4.
*Balassa, B., “The PPP Doctrine: A Reappraisal,” JPE,
1964.
*Rogoff, K., "Traded Goods Consumption Smoothing
and the Random Walk Behavior of the Real Exchange Rate," NBER Working Paper No.
4119, 1992, July.
Froot, K. and K. Rogoff, “Perspectives on
PPP and Long-Run Real Exchange Rates,” in Handbook of International
Economics Volume 3, 1995, NBER No. 4952.
*Canzoneri, M., R. Cumby, and B.
Diba, “Relative Labor Productivity and the Real Exchange Rate in the Long Run,”
NBER Working Paper, 1997.
*Dornbusch, R., "Real Interest Rates, Home
Goods, and Optimal External Borrowing," Journal of Political Economy,
(91) 1983.
De Gregorio, J. and H. Wolf, “Terms of
Trade, Productivity, and the Real Exchange Rate, “ NBER No. 4807.
*Class Notes
V.
Fixed Exchange Rates, Target Zones, and Speculative Attacks
*Obstfeld, M. and K. Rogoff, FIM, Chapter 8.
*Sarno and Taylor, TEER, Chapters 6,7,8.
*Krugman, P., "A Model of Balance of Payments Crises," Journal of Money,
Credit, and Banking, (11) 1979, August.
*Krugman, P., "Target Zones and Exchange Rate Dynamics," Quarterly Journal of
Economics, (CVI) 1991, August.
*Clarida, R., J. Gali and M. Gertler, “Monetary Policy Rules in Practice: Some
International Evidence,” European Economic Review, March
1998.
Obstfeld, M., "The Logic of Currency Crises,"
NBER Working Paper No. 4640, 1994, February.
Velasco, A. and K. Chang, “Financial Fragility and the Exchange Rate Regime,”
NBER No. 6469.
Clarida, R., “G3 Exchange Rate Relationships: A Recap of the Record and a
Review of Proposals for Change,” NBER No.7434.
*Class
Notes
VI.
New Open Economy Macro and
Optimal Monetary and Exchange Rate Policy
*Obstfeld, M. and K. Rogoff, FIM, Chapters 10.
*Sarno and Taylor, TEER, Chapter 5.
*Lane, P., “The New Open Economy Macroeconomics: A Survey,” Journal of
International Economics, Vol. 54, 2001.
*Clarida, R. J. Gali,
M. Gertler, “A Simple Framework for International Monetary Policy Analysis,”
Journal of Monetary
Economics, June 2002, NBER No. 8870.
*Corsetti, G. and P. Pesenti, “Welfare and Macroeconomic Interdependence,”
NBER No. 6307.
Obstfeld, M. and K. Rogoff, “The Six
Major Puzzles in International Macroeconomics: Is there a Common Cause?” NBER
Macro Annual, 2001.
*Class Notes
http://www.geocities.com/monetaryrules/mpoe.htm
http://www.geocities.com/brian_m_doyle/open.html