Dr. Valerie R. Bencivenga University of Texas at Austin
BRB 3.102C Department of Economics
Office hours: T, Th 10:00-11:30 Spring 2010
Email: benciven@eco.utexas.edu
Course Outline
Economics 339L: INTERNATIONAL FINANCE
Unique number 33670 (ETC 2.136)
COURSE GOALS
This course begins with core material of international finance (exchange rates, foreign exchange markets, and the short-run and long-run relationships among exchange rates, interest rates, price levels, inflation rates, and real incomes). Next we’ll cover fundamentals concerning exchange rates and macroeconomics (balance of payments, domestic and foreign debt, the determinants of inflation, financial development and financial market regulation). Different exchange rate regimes are of central importance in macroeconomics (fixed vs. floating exchange rates, currency boards, and currency areas such as the euro). Finally, we’ll study financial crises and currency crashes, including the international finance aspects of the recent global economic crisis, but also many other historical episodes.
At the conclusion of this course, you will understand the forces that determine exchange rates, how foreign exchange markets work, basic financial instruments based on exchange rates, the advantages and disadvantages of various exchange rate regimes, the relationship between inflation and exchange rates, and the relationships among financial markets, capital flows, and exchange rates. This material will contribute to your understanding of economic history, economic development, contemporary policy debates about levels of government debt and financial market regulation, and conditions facing international businesses.
PREREQUISITES
Enrollment in this course requires you to have taken Eco 420K and Eco 320L, with a grade of at least C- in each.
TEXTBOOKS
There are two required books. The main textbook is International Economics by Robert C. FEENSTRA and Alan M. TAYLOR (Worth, 2008). Alternatively, you may use the finance “split” of this book, International Macroeconomics. This is widely regarded as the best, most modern book on international economics.
The other book is This Time is Different: Eight Centuries of Financial Folly by Carmen M. REINHART and Kenneth S. ROGOFF (Princeton University Press, 2009). This is a great history of financial crises and economic crises.
EVALUATION
Your course grade will be based on two midterm exams (25% each), a final exam (35%), and several homework assignments (15%). Pluses and minuses will be used.
The dates of the in-class midterms are February 23 and April 1. The final exam is tentatively scheduled to be on Saturday May 15 (9:00am to noon). The official date, time, and room for the final will be posted by the registrar about a month ahead.
As a general rule, there will be no makeup midterms. If you miss a midterm due to illness or a personal or family emergency, and if you provide me with documentation of the event, I will re-weight your other exams. Please keep me informed of any problems you are having that might have an impact on your performance in this class!
HOMEWORK
There will be one or two homework assignments leading up to each of the three exams (i.e., a total of three to six assignments). Each assignment will consist of a combination of analytical problems, and questions based on articles from newspapers such as The Economist, Financial Times, or Wall Street Journal. You’ll have at least a week to complete each assignment.
SLIDES, HANDOUTS, AND PRACTICE MATERIALS
I will put most of my lectures on slides or handouts, which I will post on Blackboard. These will contain point-form outlines, data, graphs, equations, numerical examples, etc. When possible, I’ll post them in advance, so you can take notes on them. I’ll also post practice exams before your midterms and final.
BLACKBOARD AND EMAIL
I’ll post all course materials on Blackboard (course outline, lecture slides and handouts, homework assignments and answers, practice exams and answers, etc.). Every time I post something, I’ll email the class from Blackboard. I’ll update course information (homework due dates, TA office hour information, etc.) on Blackboard, and by email. You are responsible for all information conveyed in class, as well as announcements emailed from Blackboard.
OFFICE HOURS
My office hours will be Tuesdays and Thursdays, from 10:00 to 11:30. The TA’s office hours are TBA.
TEACHING ASSISTANT
The TA for this course is Jacqueline Kirby. Her office number and office hours are TBA.
SCHEDULE OF TOPICS AND READINGS (TENTATIVE)
Here is the schedule of readings from Feenstra and Taylor (FT) and Reinhart and Rogoff (RR). Italicized chapters/sections will be covered if time permits. In addition to these readings, articles on current economic events and policy issues from The Economist, Financial Times, Wall Street Journal, on-line journals such as Economists’ Voice, and blogs such as Calculated Risk and Greg Mankiw’s Blog will be assigned on an on-going basis. I’ll post these added readings on Blackboard, and I’ll email you each time I post something.
Week 1: The Global Economy (FT, ch 12)
Week 2: Introduction to Exchange Rates and the Foreign Exchange Market (FT, ch 13)
Weeks 3-4: Exchange Rates I: The Monetary Approach in the Long Run (FT, ch 14)
Weeks 4-5: Exchange Rates II: The Asset Approach in the Short Run (FT, ch 15)
MIDTERM EXAM #1
Week 6: National and International Accounts: Income, Wealth, and the Balance of Payments (FT, ch 16)
Balance of Payments I: The Gains from Financial Globalization (FT, ch 17)
Weeks 7-8: Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run (FT, ch 18)
Week 8-9: Fixed vs. Floating: International Monetary Experience (FT, ch 19)
The Euro (FT, ch 21)
Week 10: Exchange Rate Crises: How Pegs Work and How They Break (FT, ch 20)
MIDTERM EXAM #2
Week 11: Financial Crises: An Operational Primer (RR, Part 1)
Varieties of Crises and Their Dates (RR, ch 1)
Debt Intolerance: The Genesis of Serial Default (RR, ch 2)
A Global Database on Financial Crises with a Long-Term View (RR, ch 3)
Sovereign External Debt Crises (RR, Part II)
A Digression on the Theoretical Underpinnings of Debt Crises (RR, ch 4)
Cycles of Sovereign Default on External Debt (RR, ch 5)
External Default through History (RR, ch 6)
The Forgotten History of Domestic Debt and Default (RR, Part III)
The Stylized Facts of Domestic Debt and Default (RR, ch 7)
Domestic Debt: The Missing Link Explaining External Default and High Inflation (RR, ch 8)
Domestic and External Default: Which is Worse? Who is Senior (RR, ch 9)
Week 12-13: Banking Crises, Inflation, and Currency Crises (RR, Part IV)
Banking Crises (RR, ch 10)
Default through Debasement: An “Old World” Favorite (RR, ch 11)
Inflation and Modern Currency Crashes (RR, ch 12)
Week 14-15: The US Subprime Meltdown and the Second Great Contraction (RR, Part V)
The US Subprime Crisis: An International and Historical Comparison (RR, ch 13)
The Aftermath of Financial Crises (RR, ch 14)
The International Dimensions of the Subprime Crisis: The Results of Contagion or Common Fundamentals? (RR, ch 15)
Composite Measures of Financial Turmoil (RR, ch 16)
What Have We Learned (Part VI)
Reflections on Early Warnings (RR, ch 17)
FINAL EXAM