Economics 181 International Finance

UCSB Spring 2013 COURSE SYLLABUS v.4

Contact info: Classes: Office Hours: Midterm: Final Exam:

Professor Julia Lowell North Hall 3048 lowell@econ.ucsb.edu Thurs 11am-1pm

Monday/Wednesday 3:30-4:45pm North Hall 1105 Wednesday, 8 May

Friday, 14 June 12-3pm

Economics 181 provides a theoretical framework for analyzing a variety of topics in international finance/open-economy macroeconomics, including the balance of payments; the foreign exchange market; connections between exchange rates, money, interest rates, and output; and choice of exchange rate regime. In addition to providing basic analytical tools, the course covers current policy issues such as the international coordination of fiscal and monetary policy; financial globalization; banking, currency and sovereign debt crises; and the role of the U.S. dollar as an international reserve currency.

Grading
Class participation and problem sets (15%) Short readings (10%) Midterm (25%) Final (50%)

Textbook
Krugman, Paul R., Maurice Obstfeld, and Marc J. Melitz, International Economics: Theory and Policy, 9th Edition, Boston, MA: Addison-Wesley, 2012. The course will follow fairly closely the second half of the text, Chapters 13-21 only.

Readings
The primary reading for the course is the textbook, Krugman, Obsteld & Melitz. This text packs a lot of information into a relatively small space; please take your time and 1

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read it carefully. You dont have to finish each chapter before we begin talking about it in class. Additional readings include short analyses of and articles on current developments in the international macroeconomy. These readings will be available on the class website (GauchoSpace) under Readings for each week. Short-notice additions and substitutions are likely, so look first at the website rather than the syllabus. Please complete the short readings listed for each class before class. A single question based on these readings (not the textbook) will be handed out and collected at the beginning of each class; answers will be graded with either a one (nice try) or two (great). Students who suggest good short readings for the class will receive a two for that reading.

Assignments
Problem sets consisting of ~2-5 problems will be made available at the end of the lecture each Wednesday and are due by the beginning of lecture the following Monday. A single problem from each problem set will be chosen at random to be graded either "check+" (100%), "check" (85%), or "check-" (70%). Problem sets that are not handed in will receive a zero. Whenever possible I will use the GauchoSpace assignments feature to assign, collect and grade problem sets. Answers will be posted to the website after class each Monday.

Midterm and Final Exam

No make-up exams will be provided; please clear your schedule now for the midterm on 8 May and final exam on 14 June. Exams are closed book with a mixture of short answer and multiple choice analytical problems. The final exam will be cumulative, with a greater weight on material from the second part of the quarter.

CLASS SCHEDULE AND ASSIGNED READINGS

Subject to change. Revisions to the syllabus will be posted on the class webpage. WEEK 1 Class 1 Lecture:

Mon 1 April Introduction to Econ 181Course overview National income accounting and the balance of payments

Readings Krugman et al, Ch. 13

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Weds 3 April National income accounting and the balance of payments Exchange rates and the foreign exchange market Required Readings Krugman et al, Ch. 13-14 Associated Press, U.S. current account trade deficit narrows to $110.4 billion in fourth quarter, The Washington Post, 14 March 2013. China reserves ample to buy worlds gold twice, Bloomberg News, 3 March 2013.

WEEK 2 Class 3 Mon 8 April Lecture: Exchange rates and the foreign exchange market Required Readings Krugman et al, Ch. 14 Hyman, Sean, How a 24-hour trading market works for the average Joe Investor, Nasdaq.com, 5 June 2009. TBD Class 4 Lecture: Weds 10 April Exchange rates and the foreign exchange market Money, interest rates and exchange rates Required Readings Krugman et al, Ch. 14-15 War games: another battle to achieve currency depreciation, The Economist, 19 January 2013. TBD WEEK 3 Class 5 Mon 15 April Lecture: Money, interest rates and exchange rates Required Readings Krugman et al, Ch. 15 TBD Class 6 Weds 17 April Lecture: Money, interest rates and exchange rates Required Readings Krugman et al, Ch. 15 TBD

WEEK 4 Class 7 Mon 22 April Lecture: Price levels and the exchange rate in the long run Required Readings Krugman et al, Ch. 16 3

Econ 181 TBD Class 8 Weds 24 April Lecture: Price levels and the exchange rate in the long run Required Readings Krugman et al, Ch. 16 TBD

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WEEK 5 Class 9 Mon 29 April Lecture: Price levels and the exchange rate in the long run Required Readings Krugman et al, Ch. 16-17 TBD

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Class 10 Weds 1 May Lecture: Price levels and the exchange rate in the long run Required Readings Krugman et al, Ch. 17 TBD

WEEK 6 Class 11 Mon 6 May Lecture: Price levels and the exchange rate in the short run Required Readings Krugman et al, Ch. 17 TBD Class 12 Weds 8 May MIDTERM EXAM

WEEK 7 Class 13 Lecture:

Mon 13 May Post-midterm review Output and the exchange rate in the short run Required Readings Krugman et al, Ch. 17 TBD Class 14 Weds 15 May Lecture: Output and the exchange rate in the short run Required Readings Krugman et al, Ch. 17 TBD

WEEK 8 Class 15 Lecture:

Mon 20 May Output and the exchange rate in the short run Fixed exchange rates and foreign exchange intervention Required Readings Krugman et al, Chs. 17-18 TBD Class 16 Weds 22 May Lecture: Fixed exchange rates and foreign exchange intervention Required Readings Krugman et al, Ch. 18 5

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WEEK 9 Class 17 Mon 27 May MEMORIAL DAY HOLIDAY NO CLASS Class 18 Weds 29 May Lecture: Fixed exchange rates and foreign exchange intervention Required Readings Krugman et al, Ch. 18 TBD

WEEK 10 Class 19 Mon 3 June Lecture: International monetary systems Required Readings Krugman et al, Ch. 19 TBD Class 20 Last class Lecture: Weds 5 June

International monetary systems Financial globalization? Required Readings Krugman et al, Ch. 19, Ch. 21 TBD