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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

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

Some illustrationsof international economic questions

that we study in ITF220

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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.

Why are MacDonald’s hamburgers expensive in Switzerland?

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and cheap in China?

Why did Emerging Markets plummet in May/June 2013

when Fed Chairman Bernanke talked of “tapering” QE?

8Financial Times, Dec. 15, 2013

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?