-
 The Property of international finance
-from the different perspective of international finance: Monetary Economics; Macro
Economics; The management of international finance
The key character: The equilibrium of balance of payments_ internal and external; between the countries economy areas; The stable of international monetary system

 Old and new Approaches to international finance
_ Old: traditional analyze:flow and stock _ analyze the factors of determinations
_modern:construct the micro foundations of international monetary economics- Intertemporal analyze
_Problem: Policy make and theory; The rational choice of individual and collective; Individual expect ional Hypothesis; the optimizing model in the real world
_How deal with old and new: old first introduction of new one

 International monetary economics is a science of history
 Trace the development of international finance
_ the mechanism of price -spiece flow
_ the parity of interests
_ PPP
_ Elasticity approach
_ Multiplier approach
_ Intergrated Approach
_ Mundell – Fleming model

_ Monetary approach
_ Portfolio approach and overshooting
_ The theory on the exchange rate system
_ Triffin dilemma and Optimum Currency
Areas
_ Currency Crises theory
_ The intertemporal Approach

 On the background of international finance
 On the method of studies
 On the References

参考文献
克鲁格曼和奥伯斯法尔德，《国际经济学》，人大出版社，
2001
Salvatore，《国际经济学》，清华，1997
Appleyard and Field， 《国际经济学》，机械工业出版社，
1998
Obstfeld and Rogoff，《Foundations of International
Macroeconomics》，The MIT Press，1999
高级国际金融学教程，中国金融出版社，2002
龚关，《国际金融理论》，武汉大学出版社，2000
潘国陵，《国际金融理论与数量分析方法》，上海三联，
2000
里维里恩等《国际货币经济学前沿问题》，中国税务出版社，
2000
姜波克，《开放经济下的宏观金融管理》，复旦，1999

( 1、自由兑换，2、货币替代，3、货币市场，4、政
策搭配）
姜波克，陆前进，国际金融学，上海人民出版社，
2003年5月

徐滇庆等，《泡沫经济与金融危机》，人大，
2000


杨帆，《人民币汇率研究》，首都经贸大学出版
社，2000
让.梯若尔，《金融危机、流动性与国际货币体
系》，中国人民大学出版社，2003年9月


张礼卿，《汇率制度变革- 国际经验与中国选
择》，中国金融出版社
麦金农，《美元本位下的汇率-东亚高储蓄两难》
中国金融出版社，2005








本人近期主要相关论文


不对称国际经济体系下的人民币汇率问题 — 一个劳动力平价的视角，
论文
论人民币汇率双重均衡，管理世界，2005，5
经济全球化与“新特里芬悖论：经济理论与经济管理，2005，1，人
大复印，理论经济学4，世界经济导刊4
基于金融脆弱性的发展中国家新重商主义，浙江学刊，2005，1，人
大复印，金融与保险5，
人民币购买力平价和实际汇率分析，浙江社会科学，20041，
东亚国家汇率制度选择的困境，亚太经济，2003，3，人大复印，世
界经济导刊，7
主要国际杂志：Journal of International Economics, Journal of finance,Journal of international money and finance
主要国际网址： www.imf.org
, www.nber.org
, www.bis.org
, www.worldbank.org

 On the spot rates
_ volume quotation system
_Cross rates and Triangular arbitrage
_The mechanism of Equilibrium of
Exchange rates between different areas

 Condition: GBP/USD 1.5800/10; USD/EUR
0.9120/30;
USD/JPY 121.45/75
Problem :A firm would have EUR against 100 million
GDP, how much can the firm get
1.5800 * 0.9120 * 100M = 1.4410 *100M EUR.
Problem : how much can the firm get JPY against 100M
EUR
121.45/0.9130 *100m = 133.13 * 100M EUO

 Condition: In 1985 the exchange rate of
USD/RMB was 3.7420, and in 1994 the rate was 8.7250.



Problem:How much did the USD appreciated, and RMB depreciated
USD (8.7250 – 3.7420)/3.7420 = 133%
RMB ( 3.7420 – 8.7250)/8.7420 = 57%

 On the real exchange rates
_Concept: a broad summary measure of the prices of one country ’ s goods and services relative to other ’ s
_Different measures(2.8, 2.9; 2.10, 2.11;
2.13,2.14; 2.14)
_ A revise one: RE = e t
· （ I *
T n * )+n * · (I *
N
/ I
T
* )] / [(1-n)+n · (I
/ I
T
） · [(1-
N
/ I
T
)] 国际金融
研究 \ 方论文修改 .doc
国际金融研究 \ 三大经
济体实际汇率图 .xls

 About Price index
_Basis time point ; The structure of Index; The method of measurement
About The meaning of RE level: Appreciation and
Depreciation : Relative to the Nominal Exchange rates on the Basis time; Showing the change of international comparative power
Excises: Calculation the RE of REB against U.S dollar between 1994 – 2004 with Equation 2.8

 On the effective exchange rate
_Nominal effective exchange rates, Formula
2.15,
Pay attention: using the volume (indirect) quotation system, is given as an index number with a base of 100
_Real effective exchange rates






Concept
Hedging : open_ long_ short_ position
Forward premium and discount
CIP (2.19)(4.1), forward margin and Interest different
UIP (2.21)(4.2) with Speculators
_(4.3) Risk Premium; (4.4) Real interest Parity
(Fisher effect); (4.5) Efficiency Condition: perfect capital mobility, perfect Asset Substitutability, rational expectations and interest conditions

 Concept and history
 Onshore and offshore

 Fixed_ and floating exchange rates
 World Gold standard and Price_Specie flow mechanics
 The Bretton woods system: The adjustable peg; Reserve and The monetary Authorities ’ Intervention; adjust mechanics

 Deficit increase of exchange rates
Gold outflow decrease of money supply in home and increase in foreign change the relative prices balance
Which conditions can full the mechanics?

 Deficit Impact on E intervention
Decrease of reserve Decrease of basic money Increase of Interest capital inflow and Decrease of aggregate demand downward of Price balance
Which condition can full the mechanism?

 Why was given the name of nonsystem?
_ international currency standard
_exchange rates regime
_discipline of international economy
_adjust mechanics of balance of payments
Inter regime between fixed and free floating

 The economic meanings
 The concept (page 54)
 About the term of economic transaction; residents
 Accounting principles
 Current account ; capital and financial account; reserve balance charter.doc
 The meaning of surplus, deficit, and equilibrium

 Equilibrium between internal and external , flow and stock in an open economy
 Explain the columns: Sector and markets
 The row identities(6.1-6.8)
 The column identities(6.9-6.18)
2004S1.htm
 Other identities

 The background of theory
 The assumption: ceteris paribus excluding
R; foreign exchange market is derived from export_ and import markets; free
Movement of exchange rates
 Elasticities of exchange rates
 Marshall-Lerner condition
 Elasticity Optimism vs. Pessimism

 Foreign exchange market Equilibrium
 Real Equilibrium
Multiple equilibrium because of uncertainty of the change of export value when R changed
The stable conditions: an exchange rates depreciation should reduce excess demand for foreign exchange
 The meaning for developing countries

 The relationship between excess demand und forward rates(7.17)
Arbitrage with limited funds (figure 7.2)
Commercial hedging (Figure 7.3)
Speculation (about the increase function of gap; decrease function of risk to the position)(7.5)
The monetary authorities ’ Intervention

 The background : Harrod and Keynesian; economy crises ; Transfer problem
 What means twofold relevance
 Assumption: Small country with no foreign repercussions; underemployed resources; rigidity of all prices; no capital movements
 About the repercussion

 nation 1 nation 2
X increase M increase
Y increase
M increase
Y decrease
X increase





(8.1 – 8.5) about export function
(8.6 – 8.10) injections and leakages; internal and external equilibrium; mechanics: about induced import
Multiplier: 1/I-b-h+u (8.11 – 8.13). If no induced investment, k = 1/(s + u)
The necessary and sufficient for dynamic stability (8.14 – 8.19), emphasis the expenditure propensity to domestic goods shall be smaller than 1( 8. 15) plus the marginal propensity to import

 If b + h < 1, dB > 0, dB < dX, under adjustment
 If b + h = 1, dB = 0, exact adjustment
 If b + h > 1, dB < 0, overadjustment
 The greater the marginal propensity to spend, the greater ceteris paribus the multiplier
 What is different between close and open economy

 8.22 and stability condition
 If the marginal propensity to spend is smaller than one, the induced decrease in import can not restore equilibrium.in the opposite case the balance of payments will go into surplus
 If it exists dm = dC + dI ,there is no effect on income

 Background: Keynes and Ohlin
Deterioration in term of trade or not
 Discussion: financial and real effect; current account and overall balance; under effect, effected and over effected
(8.27) (8.29)

dy dy f db dx s f
/(s* s f
+ s* m f
+ m* s f
)
>
0
- s/(s*s f
+s * m f
+ m * s f
)
< 0 s * s f
/(s * s f
+ s* m f
+ m* s f
)
> 0 di (s f
+ m f
) /(s* s f
+ s* m f
+ m* s f
)
> 0
M / (s* s f
+ s* m f
+ m* s f
)
> 0
(-m* s f
)
/
(s*s f
+s * m f m * s f
)
< 0
+

 What means an integrated approach
 Theory contribution

“ small country model ”
 About H-L-M condition: if db/dr >0,
 x
+
 m
>1 + m hold
(9.1-9.4) BB and RR schedules. Internal and external balance
Stable and unstable conditions (figure 9.3)

 Comparative statics and the transfer problem
 J curve:currency-contract, pass-through,quantityadjustment
 S curve investment explain
 About Swang model:expenditure- switching and
– change
 Depreciation effect: allocation effect and monetary illusion
 About assets effect
 Why U.S.A can`t recover the disequilibria of current account

 Introduce
_ from IS – LM model to IS – LM – BP model
_ background: the relax of capital control in west
European; The crises of golden _ dollar
_ contribution: combination of real and monetary analyze ; explaining the different effect of monetary and fiscal policies in the fixed and floating exchange rate regime; implicating the principal of policies combination in the short run

 Fixed exchange rates
_ equilibriums in goods, money and foreign exchange markets (10.1 - 10.3 )
_IS and LM curve
_ BP curve , the slope depends on the responsiveness of capital flow to the interest rate
_ current balance, capital balance and overall balance

 Stability and equilibrium
_ figure 10.5. What means the money is given and variable.140
_ Behavioral hypotheses: the money supply varies in relation to the surplus or deficit in the balance of payments(Reserve and money supply); Income varies in relation to the excess demand for goods; the rate of interest varies in relation to the excess demand for money
_sufficient stable conditions: e < 1 and m< 1
F10 471

 Dynamic analysis of the adjustment process
At point A internal equilibrium and external disequilibria decrease of reserve decrease of money supply upward of interest rats downward of consume and investment decrease of Y
A property in fixed exchange regime : the international reserve can not be sustained infinitively to support imbalance

About the burden of debt and confidence
 Short term and long term effect of capital inflow
 Bend backwards of BB curve Figure 10.7
 The experience of world debt crises in eighty`s
 Financial globalization and confidence for the stability of macro economy

 The transfer problem( this can also seen as deficit of BP
 Exchange-rate devaluation(note: BB in figure 10.9 is inelastic to I. If BB is elastic to I, the adjustment is unaffected)

 The model 10.6. M is given
 About the dynamic behavior assumptions c and d
 adjustments

 The dilemma of internal and external balance
 Tinbergen`s principle
 The problem of stagflation

 Fiscal policy with freely capital movement under fixed exchange rates
 Fiscal policy with capital control under fixed exchange rates
 Fiscal policy with freely capital movement under floating exchange rates
 a comparative

 monetary policy with freely capital movement under fixed exchange rates
 monetary policy with capital control under fixed exchange rates
 monetary policy with freely capital movement under floating exchange rates
 monetary policy with inelastic capital movement under floating exchange rates a comparative

 Figure 11.1;11.2
 Figure 11.3 11.4
 Perfect capital mobility figure 11.5







The effect of capital movement induced by the change of interest rate has a short-term property
The effect of interest on capital flow is limited
If The effect of interest on the income is sensitive, the assignment will be not true
The intervenes policy should be determined before the expectation has been changed
The payments of foreign debt will not offset the effect of interest difference on the capital movements
The policy determination would match the

 Background
 Price-specie-flow mechanism
 Assume :optimum distribution of specie; constant of income(full employment), productivity; price- elasticity sufficient (real exchange rates); I has no influence on the L
 The difference between classical and modern monetarism

 Proposition I: the relationship between stock and flow
 Proposition II : PPP and the law of one price
 Proposition III: full employment
 implication






Model 12.3
The meaning : A is the result of stock adjustment, and determined by supply and demand for money
Model 12.4
The meaning : the demand for money is a stable function of income, interest rate is a datum
12.9 and 12.6: money stock decides the change of reserve

 The different effects of devaluation from the perspective of MABP and traditional approach
 The different assumption: employment; price change; The law of one price; flow and stock
 A theory should combine the flow and stock

The approach of new Cambridge school





The main differences between new and old
The model meaning: the desired value of stock decides the level of expenditure, so that the new school is much nearer to the MABP than the old one
Private A = Y, (G – T) determines CA
The effect of devaluation on the CA is offset by the indirect effect of devaluation on the income
Policy implication

 Background
 2 ways of portfolio analyze: micro and macro F-
M model


Assumption: small country; only 3 kinds of assets; the supply and demand for foreign bond is always equal
Model 13.1 – 13.6
 Figure 13.1 and 13.2: LL, FF and NN curves

 Some remarks: The way the budget deficit is financed: issuing bonds and printing money; The influence on private income induced from interest payment; The influence on government expenditure induced from interest payment.
 The ground idea of model: combination of real and monetary, flow and stock
 Assumption

 G
R as exogenously and endogenously variable
 13.7- 13.9
 13.10 public sector`s budget deficit
 13.11- 13.14 flow and stock analyze
 13.15 Y determination under the consideration of wealth
 13.16 wealth effect on L
 13.7 The effects of payments imbalance and government deficit on the M

 Short-run and long-run equilibrium
 Long-run assumption

 Exchange rate changes influence the price level, which influence real M supply 13.25-
13.27
 Price and exchange rate changes and expectation13.28-13.30
 The basic model: 13.31-13.42

 In short – run the effect of fiscal policy on Y is better than the effect of monetary policy because of wealth and M supply

 The effect of adjustment policy under rational expectation is smaller than under static expectation, while the depreciation under rational expectation is smaller than und static expectation.

Effects of an Increase in the U.S.Money Supply
Dollar/euro exchange
Rate, E
$/
€
E
E
2
$/ €
1
$/ €
Dollar return
2'
3'
1'
Expected euro return
M 1
US
P 1
US
M 2
P 1
US
US
0
2
R 2
$
1
R 1
$
L(R
$
, Y
US
)
Dollar/euro exchange
Rate, E
$/
€
E 2
$/ €
E 3
$/ €
Rates of return
(in dollar 0 terms)
M 2
US
P
M
2
US
2
US
P 1
US
2'
Dollar return
4'
Expected euro return
2
R 2
$
4
R 1
$
L(R
$
, Y
US
)
U.S. real money supply
U.S. real money holdings
(a) Short-run effects
U.S. real money holdings
(b) Adjustment to longrun equilibrium

 PPP theory 中国的名义和实际 .ppt
 The law of one price and other problem with
PPP
 The H-B-S model: the basic idea is that the nontradable price in a country with higher productivity increases by economic growth so that the real exchange rate appreciates, but it did not affect the competition of tradable sector



设； P 为消费者物价指数， P t 为贸易品物价指数， P nt 为 F
非贸易品物价指数； a 和 b 分别代表发达国家和发展中国家；
W t
和 W nt
分别代表贸易和非贸易品的劳动生产率； N 和（ 1-
N ）分别为贸易和非贸易品的权重； L t
和 L nt
分别代表贸易
和非贸易部门的工资率。同时， N a
＜ N b
（ 1 - N b dW ant
= dW bnt
。
，（
）， P = NP t + （ 1-N ） P nt ， dW at
＞
I – N dW a bt
）＞
，
当 dW at
上升， dL at
上升，只要 dL at
率在一国的两部门基本相等， dL at
导致 dP ant ＞ dP bnt ，就有，
= dW at
据一价定律， P at = P bt ， 必有 dL at
＞ dL bt
= dL
。由于工资增长 ant
， P at 不变。根
＞ dL bt
= dL bnt
，
 P a = NP at + （ 1-N ） P ant ＞ P b = NP bt + （ 1-N ） P bnt ，且，
（ I – N a
）＞（ 1 - N b
）

Sectoral Productivity Growth Differences and the Change in the Relative Price of Nontraded Goods, 1970-1985

 The revised PPP


E = e
0
· （ I *
T
/ I
T
） · [(1-n * )+n * · (I * n)+n · (I
N
/ I
T
)]
N
/ I
T
* )] / [(1-
The relationship between ppp and real exchange rates
 Flow approach
 Monetary approach: a long-run general model15.1-15.4
 The portfolio approach







Assume: the labor cost and productivity are the main factor , which determine the price level
P ＝ w/a （ 1 ）
P = price, w = wage ， a = productivity,and
P * ＝ w * /a * （ 2 ）
The relative price between 2 counties ：
P/ P * ＝（ w/ w * ） · （ a * /a ） （ 3 ）


 Hypothesis :imperfect substitutability; small country
 15.20 – 15.24 the basic idea
 Interaction between current and capital accounts
 About macro econometric models

 Explanation and prediction
 About the method of test
 Equilibrium exchange rates: a benchmark to be used to check the possible misalignment of the actual exchange rate
 FEER , BEER AND ERER
 The relationship between RER,EER AND
PPP SHUANG EQUILIBRIUM.doc

CHAPTER 16CAPITAL MOVEMENTS,
SPECULATION AND CURRENCY CRISES
 The background: real and monetary; capital movements in the history; the characters
 Direct investment
 Short – term capital movements and speculation
 Financial crises