Open economy macroeconomics

Summary

This course covers the basics of open-economy macroeconomic theory. It starts by the measurement and use of national income; it introduces exchange rates, interest rates and inflation in the short and long run. It then turns to fluctuations and the role of monetary and fiscal policies.

Content

Keywords

International finance, open-economy macroeconomics, monetary policy, fiscal policy

Learning Prerequisites

Required courses

None, but the course "Introduction to finance" provides helpful background for part of the course.

Recommended courses

Introduction to finance

Learning Outcomes

By the end of the course, the student must be able to:

• Define the determinants of exchange rates in the short run
• Illustrate the role of money supply and interest rates in determining exchange rates in the long run
• Develop an integrated model of output and exchange rate determination
• Illustrate how monetary and fiscal policies affect output and exchange rates in the short and the long run
• Explain what is a common currency area
• Assess / Evaluate the impact of forming a common currency area, like the Eurozone
• Assess / Evaluate how countries are interconnected via the current account and changes in net foreign wealth
• Integrate the role of nontraded goods/factors in determining exchange rates in the long run
• Compare different exchange rate regimes
• Interpret monetary policy decisions
• Expound currency crises
• Expound the link between financial crises and the choice of exchange-rate regime

Transversal skills

• Plan and carry out activities in a way which makes optimal use of available time and other resources.
• Evaluate one's own performance in the team, receive and respond appropriately to feedback.
• Respect the rules of the institution in which you are working.
• Demonstrate the capacity for critical thinking
• Manage priorities.
• Access and evaluate appropriate sources of information.
• Collect data.
• Write a scientific or technical report.

Teaching methods

The course is organized in lectures, which provide the theory and include several class discussion of recent economic events.

Lectures will use slides, which will be made available on the course's Moodle page ahead of class. There will be almost weekly problem sets, which will be discussed during the exercise session but not graded.

There will not be videos of the lectures, except if a lecture cannot be held in person. I strongly
encourage you to come to class whenever possible.

Part of the evaluation of the course will be based on a group project that will be due in the last week of the course. The project is to be done in groups of 4 to 6 students. Details on the project will be announced around lecture 5 of the course; the idea will be to produce an analysis of a  question related to current monetary and/or fiscal policy developments around the world.
The hand-in date for the project will be announced at beginning of the course.

Expected student activities

Attend classes and actively contribute to discussions

Doing the problem sets (even if they are not graded)

Work on the group project

Assessment methods

Grading:

• Group Project 30%
• Midterm exam 25%
• Final exam 45%

Supervision

Resources

Virtual desktop infrastructure (VDI)

No

Bibliography

The material for this course is covered in many different textbooks. The recommended textbooks are:

• International Economics; Theory and Policy (11th edition) by Paul Krugman, Maurice Obstfeld and Marc Melitz, 12th edition, Chapters 13 to 22
• Mankiw, N.G. (2024), Macroeconomics, 12th Edition, Macmillan Learning

Moodle Link

• https://go.epfl.ch/FIN-424