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Shopping Day
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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Topics covered in ITF220
I) ELASTICITIES & THE TRADE BALANCEII) THE KEYNESIAN MODEL OF INCOME
III) THE MONETARY APPROACH TO THE BALANCE OF PAYMENTS
IV) GLOBALIZATION OF FINANCIAL MARKETSV) FISCAL & MONETARY POLICY UNDER
INTERNATIONAL CAPITAL MOBILITYVI) INTERDEPENDENCE AND COORDINATIONVII) SUPPLY, INFLATION & MONETARY UNION
VIII) EXPECTATIONS, MONEY, & DETERMINATION OF THE EXCHANGE RATE
Professor Jeffrey Frankel, Kennedy School, Harvard University
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Some illustrationsof international economic questions
that we study in ITF220
3
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-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?
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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
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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 Switzerland?
7
and cheap in China?
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Why did Emerging Markets plummet in May/June 2013
when Fed Chairman Bernanke talked of “tapering” QE?
8Financial Times, Dec. 15, 2013
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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
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Hyperinflation:
Why did Zimbabwe’s inflation rate reach 2,600%
per month in mid-2008?