Amherst College
Fall 2010
Department of Economics
Professor A. Honig
Economics 37: Financial Globalization, Growth and Crises
Office:
312 Converse
542-5032
ahonig@amherst.edu
Hours:
Monday 3:30-5:00, or by appointment
Class: M,W 2:00-3:20
Prerequisites: Economics 11
Course Materials:
N. Gregory Mankiw, Macroeconomics 6th or 7th edition. Available at Amherst Books. We
will only be covering a few chapters in the book. Therefore, you might prefer to borrow the book
from a friend when you need it. However, since this is the textbook used in EC 53, you will need
it anyway if you take that course. You are welcome to buy the 6th edition as well. The chapters
we will be covering are the same in both editions.
All course materials, except for the text and some of the readings, are available on the
ECON 37 course page in CMS. If you pre-registered for the course you should already be
“enrolled” on the course page.
Course Grading:
Your grade will be based on four problem sets, which will account for 20%, and on two
exams (40% each). Each exam will be given only at the scheduled time, Monday, October 25,
and Wednesday, December 15 (last class). Should an emergency prevent you from taking either
exam, if you notify me in advance and if the emergency is verified by the Dean of Students, your
grade will be based on the other work in the course. If you miss an exam without notifying me
in advance or without providing verification from the dean’s office, you will receive a grade of
zero for the missed exam.
Attendance policy: Class attendance is entirely optional. Your grade will be based solely
on your graded assignments. Regular attendance, however, is strongly recommended since many
of the lecture notes are my own and are not based on any textbook.
All readings are required. Class will meet every Monday and Wednesday, whether or not
there is an assignment listed for that date.
Course Policy on the Statement of Intellectual Responsibility:
I expect you to abide by Amherst College’s Statement of Intellectual Responsibility.
While I encourage you to discuss the course material with other students, all written work,
whether performed in or out of the classroom, must be your own. Violations of the Statement of
Intellectual Responsibility will result in a course grade of F and will be reported to the Dean of
Students, in addition to any non-grade penalty imposed by the Dean for Student Conduct.
1
Course Schedule
Week 1
Monday
NO CLASS
Wednesday
Intro to Financial Globalization (FG)
Week2
Monday
Wednesday
Week 3
Monday
Wednesday
Intro (contd.)
Reading:
Mankiw section 5-1
World Bank Research Report 2002 – Chapter 1: The New Wave of Globalization
and Its Economic Effects – course website
Intro to Growth
Reading:
Mankiw Chapter 3, sections 3-1 to 3-3
Percentage change rules – course website
Mankiw - Appendix to Chapter 8
A Beginner’s Guide to Growth Accounting – course website
How can FG increase growth?
Reading:
Prasad, Rogoff, Wei, Kose 2004 - Financial Globalization, Growth and Volatility
in Developing Countries. Sections I-intro, IA, IB, II, IIIA
http://www.nber.org/papers/w10942
Prasad, Rogoff, Wei, Kose 2008 - Financial Globalization: A Reappraisal. Section
VIIA,VIIC, VIII . http://www.imf.org/external/pubs/cat/longres.cfm?sk=19435.0
How do basic institutions contribute to growth?
Reading:
IMF World Economic Outlook April 2003 Chapter 3
http://www.imf.org/external/pubs/ft/weo/2003/01/index.htm
“Roots of Development” – Economist 10/5/2002 - E-reserves
Week 4
Monday
How does FG improve basic institutions?
Wednesday
How does the financial system contribute to growth?
Week 5
Monday
What helps the financial system develop?
Wednesday
How does FG lead to financial system development
Reading:
Reread Prasad, Rogoff, Wei, Kose 2008 - Financial Globalization: A Reappraisal.
Section VIIIA
2
Week 6
Monday
Wednesday
Week 7
Monday
Wednesday
Week 8
Monday
Wednesday
Week 9
Monday
Wednesday
Week 10
Monday
NO CLASS
Evidence that FG increases growth
Reading:
Prasad, Rogoff, Wei, Kose 2004 - Financial Globalization, Growth and Volatility
in Developing Countries. Section III-B, C
Prasad, Rogoff, Wei, Kose 2008 - Financial Globalization: A Reappraisal. Section
VIIB, IX.
Evidence that FG increases growth, Effect of FG on consumption volatility
Reading:
Prasad, Rogoff, Wei, Kose 2004 - Financial Globalization, Growth and Volatility
in Developing Countries. Sections I-C and IV.
Goods market in the long run and the Money market
Reading:
Mankiw Chapter 3 – reread 3-1 to 3-3 and then read rest of chapter
Changes in linear equations – course website
Mankiw Chapter 4 (excluding the Appendix)
FIRST EXAM
Closed economy model of AD.
Reading:
SR: Chapter 7.1 – IS curve
SR: Chapter 7.2 – Money Market and Monetary Policy
SR: Chapter 7.3a – Monetary and Fiscal Policy in the short run
SR: Chapter 7.4 – IS curve in the long run and Summary
Problem Set 1 due
Open economy model of AD
Reading:
Readings:
Ch 5 (Including the Appendix) & Appendix to Ch 12
SR: The Open Economy Goods Market with Flexible and Fixed Exchange Rates
Open economy model of AD
Problem Set 2 due
Intro to financial crises, currency crises
Reading:
3
Academic literature on currency crises – course website
Wednesday
Week 11
Monday
Wednesday
Banking/financial crises and links with currency crises
Reading:
Mishkin, Frederic. (1996), “Understanding Financial Crises: A Developing
Country Perspective” http://www.nber.org/papers/w5600 Don’t read section III
or VI.
Kaminsky, Graciela and Carmen Reinhart (1999). “The Twin Crises: The Causes
of Banking and Balance-of-Payments Problems,” American Economic Review,
89(3): 473-500. Read Introduction and Section 1a – pp 1-6 - E-reserves
Problem Set 3 due
How does FG lead to financial crises?
Recovering from crises, financial policies to prevent crises
Reading:
Mishkin, Frederic, 2001, “Financial Policies and the Prevention of Financial
Crises in Emerging Market Countries” http://www.nber.org/papers/w8087 Just
read sections 5 and 6 .
Problem Set 4 due
THANKSGIVING BREAK
Week 12
Monday
Wednesday
Week 13
Monday
Financial policies to prevent crises, other policies to prevent crises
General institutions and crises, capital controls, proper sequencing
Reading:
Prasad, E., Rajan, R. 2008. A pragmatic approach to capital account liberalization.
http://www.nber.org/papers/w14051 p. 17-21 (section on “Approaches to
Restricting and Liberalizing Capital Flows”)
Role of IMF and advanced countries
Reading:
“Supersizing the fund” Economist 2/7/2009 - E-reserves
Wednesday
Role of IMF and advanced countries (contd.)
Week 14
Monday
Conclusion to course and evaluations.
Wednesday
SECOND EXAM
4