Syllabus
INTERNATIONAL FINANCE A1
Masters cycle, Fall Semester 2006
Syllabus
Dr. Alexis DERVIZ
(E-mail: Alexis.Derviz@cnb.cz)
I. The IS-LM-BP (Mundell-Fleming) Model 1. The building blocks of the model; the trade and service balance 2. IS-, LM, and BP-equations, equilibrium 2.1. Degrees of capital mobility 2.2. Fixed vs. flexible exchange rate regime 3. Policy consequences 4. The exchange rate-related aspects of the model 4.1. Purchasing power parity 4.2. Deviations from uncovered interest rate parity, Siegel?s paradox
II. Generalizations of the Mundell-Fleming model 1. Convergence to full equilibrium 2. Dornbusch?s ?overshooting? in an IS-LM-BP-economy 3. Policy consequences. The ?Dutch disease? 4. Fixed exchange rate in the Mundell-Fleming model 4.1. Monetary and fiscal policy feasibility 4.2. Consequences of devaluation 4.3. Alternative: a first look at the monetarist understanding of the exchange rate, comparison to the Mundell-Fleming results 5. Applicability limits of the IS-LM-BP scheme: sovereign debt 5.1. Debt buybacks 5.2. Issue of senior debt
III. The monetarist approach to the balance of payments 1. The Frenkel-Mussa model of the exchange rate dynamics 2. Price and output adjustment under an autonomous monetary policy 2.1. Growing economies and the balance of payments 2.2. The ?price-specie-flow? mechanism, the gold standard and its sustainability 3. A weak point of the quantity theory of money: eurocurrency markets 4. Exchange rate overshooting in the monetary model 5. Uncovered interest rate parity: theoretical and empirical traps and remedies
IV. Aggregate supply, wages, and prices in an open economy 1. A model with sticky nominal wages 2. Aggregate supply and demand models under fixed and flexible exchange rates 3. The balance of payments and long-run equilibrium 4. Explanations of persistent current account imbalances
Requirements
Home assignments 50%
Written test 50%
Annotation
The course is an introduction to both classic and recent methods of analyzing foreign debt, external balance and the exchange rate determination in open economies. Wherever possible, macroeconomic and finance appoaches are followed in parallel.
Prior familiarity with open macroeconomics and foreign trade issues on descriptive level is desirable. The exposition is mostly formal and requires a sound command of high-school algebra and basics of probability theory.
Due to the coverage that is split between lectures and seminars, home exercises are an integral part of the program.