ITF 220: The Economics of International Financial Policy

Course Preview, Shopping Day

Prof. Jeffrey FrankelJanuary 23, 2015

ITF-220: Economics of International Financial Policy

• I.e., Open-economy macroeconomics

• Professor: Jeffrey Frankel Office hrs: Mon.4:15-5:15; Tues.2:00-3:00.

• Pre-requisites:– Introductory micro-economics– Intermediate macro-economics– Comfort with quantitative thinking, esp. algebra

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• Prerequisite for ITF 220:standard Intermediate Macroeconomics.

For example: API 121 Macro Theory & Policy Filipe Campante [not offered, 2014-15]

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At more advanced levels:

• API-120 Fall JF Advanced Macro for Open Economy I

• API-119 Spring Filipe CampanteAdvanced Macro for Open Economy II

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Other useful / relevant courses

• Econometrics

• Finance – – API-141 Fall Akash Deep Finance

– ITF 270 Spring Carmen Reinhart Financial Crises

• International trade --– at a much less technical level,

• ITF-110 F Robert Lawrence Political Economy of Trade

• ITF-225 S Robert Lawrence Future of Globalization& Larry Summers [not offered, 2014-15]

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Substitutes for ITF 220 (this course)

• but at a more basic level:

- ITF-100 F International Capital Markets

Alfred Schipke [not offered, 2014 ]

• At a more advanced level: In the Economics Department (FAS),

- Ec 1544 S Foundations of International Macroeconomic Policy Gita Gopinath.

Topics covered in ITF220

I) ELASTICITIES & THE TRADE BALANCEII) THE KEYNESIAN MODEL OF INCOME

III) THE MONETARY APPROACH TO THE BALANCE OF

PAYMENTSIV) GLOBALIZATION OF FINANCIAL MARKETSV) FISCAL & MONETARY POLICY UNDER

INTERNATIONAL CAPITAL MOBILITYVI) INTERDEPENDENCE & COORDINATIONVII) SUPPLY, INFLATION & MONETARY UNION

VIII) EXPECTATIONS, MONEY, & DETERMINATION OF THE EXCHANGE RATE

Professor Jeffrey Frankel, Kennedy School, Harvard University

Some illustrationsof international economic questions

that we study in ITF220

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Why did the euro depreciate 2 % yesterday, Jan. 22, 2015?

-900000

-800000

-700000

-600000

-500000

-400000

-300000

-200000

-100000

0

100000

Merchandise

G&S TB

CA balance

Why was the US trade balance on a downward trend, 1965-2011?

($ millions) ↑ Surplus↓ Deficit

Measures of external balance: United States

with a few improvements in 1990-91, 2001, & especially 2008-09?

Bussière, Callegari, Ghironi, Sestieri, & N.Yamano, 2013,"Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009."

Why did global trade collapsein the 2008-09 global recession?

(much more than usual)

2009

Has fiscal austerity helped, as a response to the euro crisis?

Source: P.Krugman, 10 May 2012, via R.Portes, May 2013.

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Why are MacDonald’s hamburgers

expensive in Norway & Switzerland?

but cheap in India & Ukraine?

http://www.economist.com/news/finance-and-economics/21608647-our-flame-grilled-guide-currencies-suggests-dollar-getting-dearer

Why did Mexico used

to suffer a currency crisis every

6 years?

Mexican inflation, 1970-2011

Changes in the $ value of the peso, 1970-2011

Hyperinflation:

Why did Zimbabwe’s inflation rate reach 2,600%

per month in mid-2008?

After Fed “taper talk” in May 2013, why did capital flows to Emerging Markets reverse?

Powell, Jerome. 2013. “Advanced Economy Monetary Policy and Emerging Market Economies.” Speech at the Federal Reserve Bank of San Francisco Asia Economic Policy Conference, November .http://www.frbsf.org/economic-research/publications/economic-letter/2014/march/federal-reserve-tapering-emerging-markets/ 

Why did EM stocks fall not only in May-June 2013 but also January 2014 ?

Source: FT

Why did the Swiss National Bank allow the Swiss franc to appreciate 15 % on 1/15/2015?

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