ITF 220:
The Economics
of International Financial Policy
Course Preview, Shopping Day
Prof. Jeffrey Frankel
January 21, 2016
ITF-220: Economics of
International Financial Policy
• I.e., Open-economy macroeconomics
• Professor: Jeffrey Frankel
– Office hours: Mon.& Tues., 3:00-4:00.
• Pre-requisites:
– Introductory micro-economics
– Intermediate macro-economics
– Comfort with quantitative thinking, esp. algebra
• Prerequisite for ITF 220:
standard Intermediate Macroeconomics.
For example:
API 121 Macro Theory & Policy
Spring
Filipe Campante
3
Courses at more advanced
levels than ITF-220:
• API-120 Fall JF
Advanced Macro for Open Economy I
• API-119 Spring Filipe Campante + JF
Advanced Macro for Open Economy II
4
Other useful / relevant courses
• Econometrics
• Finance –
– API-141
– ITF 270
Fall
Akash Deep
Spring Carmen Reinhart
Finance
Financial Crises
• International trade --at a much less technical level,
– ITF-110 Fall
Robert Lawrence Political Economy of Trade
– ITF-225 Spring
Robert Lawrence
& Larry Summers
Future of Globalization
5
Substitutes for ITF 220 (this course)
• but at a more basic level:
- ITF-100 F International Capital Markets [not offered, 2015-16 ]
• At perhaps a slightly more advanced level:
In the Economics Department (FAS),
- Ec 1544 Spring
Gita Gopinath [not offered 2015-16]
• Foundations of International Macroeconomic Policy
- Ec 1545 Fall
Ken Rogoff
International Financial and Macroeconomic Policy
6
Topics covered in ITF220
I)
II)
III)
IV)
V)
ELASTICITIES & THE TRADE BALANCE
THE KEYNESIAN MODEL OF INCOME
MONEY AND THE BALANCE OF PAYMENTS
GLOBALIZATION OF FINANCIAL MARKETS
FISCAL & MONETARY POLICY UNDER
INTERNATIONAL CAPITAL MOBILITY
VI) INTERDEPENDENCE & COORDINATION
VII) SUPPLY, INFLATION & MONETARY UNION
VIII) EXPECTATIONS, MONEY & DETERMINATION
OF THE EXCHANGE RATE
Professor Jeffrey Frankel, Kennedy School, Harvard University
Some applied illustrations
of international economic questions
that we study in ITF220
8
Why was the US trade balance on a downward trend,
1965-2011?
with a improvements in 1990-91, 2001, & especially 2008-09?
100000
0
($ millions)
19
70
19
74
19
78
19
82
19
86
19
90
19
94
19
98
20
02
20
06
20
10
-100000
Measures of external balance: United States
↑ Surplus
↓ Deficit
-200000
-300000
Merchandise
-400000
G&S TB
-500000
CA balance
-600000
-700000
-800000
-900000
Why did global trade collapse
in the 2008-09 global recession?
(much more than usual)
2009
Bussière, Callegari, Ghironi, Sestieri, & N.Yamano, 2013,
"Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009."
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 Norway
& Switzerland?
but cheap in India
& Ukraine?
12
http://www.economist.com/news/finance-and-economics/21608647-our-flame-grilled-guide-currencies-suggests-dollar-getting-dearer
Why has China been losing foreign
exchange reserves since mid-2014?
June
2014
Dec.
2015
13
Mexican inflation, 1970-2011
Why did
Mexico used
to suffer
a currency
crisis every
6 years?
Changes in the $ value of the peso, 1970-2011
Hyperinflation:
Why did
Zimbabwe’s
inflation rate
reach 2,600%
per month
in mid-2008?
After Fed “taper talk” in May 2013, why did
capital flows to Emerging Markets reverse?
Powell, Jerome. 2013. “Advanced Economy Monetary Policy and Emerging Market Economies.”
Speech at the Federal Reserve Bank of San Francisco Asia Economic Policy Conference, November .
http://www.frbsf.org/economic-research/publications/economic-letter/2014/march/federal-reserve-tapering-emerging-markets/