EGEI
Open Economy Macroeconomics
Scope
The course is mainly devoted to the analysis of both balance of payments and exchange-rate determination theories. The first part presents some traditional approaches to the balance of payments, beginning with elasticity and absorption approaches, following on with the Mundell-Fleming model and finishing with the monetary approach. The second part deals with the different theories of exchange rate determination, from the most conventional one (purchasing power parity) to the most "modern" theories, embodied in the monetary and portfolio models. The third part is devoted to the discussion of the pros and cons of different exchange-rates regimes (cf. the theory of 'optimal currency areas'). The last part deals with policy co-ordination issues.

Content

  • Elasticity and Absorption Approaches to the Balance of Payments.
  • Macroeconomic Policy in an Open Economy: The Mundell-Fleming Model
    the SOE case
    the 2-country case
  • The Monetary Approach to the Balance of Payments
  • Purchasing Power Parity and Floating Exchange Rates: Theory and Evidence
  • The Monetary Approach to Exchange Rate Determination
  • Dornbusch's Overshooting Model of Exchange Rates
  • The Portfolio Balance Model of Exchange Rates
  • The New Open Economy Macroeconomics: the Obstfeld-Rogoff model
  • Fixed versus Floating Exchange Rates: the historical trade 
  • Optimal Currency Areas
  • Economic Policy in 2-sector models of international trade
    the SOE case
    the 2-country case
  • Co-ordination Issues

Bibliography
COPELAND, I., Exchange Rates and International Finance, Prentice Hall, 2000.
DORNBUSCH, R., Open Economy Macroeconomics, Basic Books, 1980.
MEEUSEN, W., ‘European Economic Integration: from business cycle to business cycle’, in: R. Wakeman (ed.), 
Themes in Modern European History since 1945, Routledge, 2003, pp. 234-262.
OBSTFELD, M. and K. ROGOFF, Foundations of International Macroeconomics, MIT Press, 1996.
PENTECOST, E., Exchange Rates Dynamics, Edward Elgar, 1993.
PILBEAM, K., International Finance, Macmillan, 1998.
RIVERA BATIZ, F. and L. RIVERA BATIZ, International Finance and Open Economy Macroeconomics, Macmillan, 1994.
TURNOVSKY, S.J., International Macroeconomic Dynamics, MIT Press, 1997.
WALSH, C.E., Monetary Theory and Policy, 2nd ed., MIT Press, Cambridge, Mass., 2003.

 
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