Download Macroeconomics and Finance: Perspectives from Asia

BMA5122: Module Outline
Macroeconomics and Finance: Perspectives from Asia
Asia’s ascendance in the global economy is now widely celebrated and taught. There is a
dearth of courses, however, that systematically draw a link between Asia’s “real” economic
development and business cycle dynamics on the one hand, and the role of financial markets
and policy, on the other. This elective seeks to bridge this gap.
Specifically, this module explores the link between economic growth, financial markets and
policy in Asia, from a structural as well as cyclical perspective. The module draws on many
analytical tools of macro and international economics covered in BMA5011, which is a prerequisite. Major topics covered include: (1) The role of financial system and regulation in
Asia’s economic development; (2) Asian financial crisis and its legacies; (3) The evolution of
Asian exchange rate regimes and real exchange rate adjustment; and (4) Opportunities and
policy challenges posed by globalization, regional integration and cross-border transmission
of shocks.
This module adopts a seminar, as opposed to the standard lecture format, where students
are expected to actively participate in discussion and presentations.
Module objectives
1. Gain a broader historical and comparative perspective on Asia’s economic development
and macroeconomic policy framework
2. Deepen understanding of applied macro and international economics theory through
case studies
3. Develop an appreciation of the interplay between financial markets and
macro/financial policy
Syllabus (non-exhaustive)
1. Conceptual groundwork
- Finance and economic growth
- Financial systems
2. Asia’s Growth Strategy and the role of finance
- Outward orientation in trade
- Financial regulation
o Foreign exchange/capital controls
o Interest rate regulation and directed credit
o Stifled capital markets
o Prototypes: Japan, Korea, China, India
3. Shift to a new paradigm?
- Capital account liberalization: Portfolio vs. FDI flows
- Financial market deregulation
o Easing of capital controls
o Interest rate liberalization & new financial instruments
o Financial market deepening
o Banks vs. capital market
4. Implications for the real economy & challenges ahead
- Global imbalance and Asia
- Shift to a more consumption driven growth from investment and exports
- Market vs. policy led allocation of capital
- Shift from tradable production to non-tradable
- Shifting the driver of growth: from perspiration (factor accumulation) to inspiration
(total factor productivity)
5. Sequencing of Financial Liberalization
-
Capital vs. current account
Short-term vs. long-term capital flows
Bank vs. Non-bank financial intermediaries
Banks vs. capital market
6. Asian Financial Crisis and Its Legacies
- USD peg and real exchange rate misalignment
- Domestic imbalance and asset bubble
- Getting the sequencing of liberalization wrong
- Historical and comparative perspectives on the Asian crisis
7. Exchange rate regimes
- How real exchange rate is determined and why it matters
- Pre-Asian crisis USD peg
- Post-crisis managed float
- The rise of China and nascent RMB-bloc?
- Is Asia an optimal currency area?
- Implications for the conduct of macroeconomic policies
8. Globalization, Regional Integration and Cross-Border Transmission of Shocks
- Regional economic integration & shifting center of economic gravity
9. Monetary and exchange rate policy with increased capital mobility
10. Policy and financial market Nexus
- Why/how policy matters for financial markets
- Why/how financial markets matters for policy
- Examples of cyclical policy
- Examples of structural policy
11. Country case studies (to be presented by students)
- Japan
- Korea
- China
- India
- Indonesia
6. Illustrative Reading list
(a) Compulsory reading
Fase, M.M.G. and R.C.N. Abma, “Financial Environment and Economic Growth in Selected
Asian Countries,” Journal of Asian Economics 14 (2003)
Eichengreen, B., “The Asian Financial Crisis After Ten Years”
http://www.econ.berkeley.edu/%Eichengr/sing_keynote.pdf
“Global Demand Rebalancing: The Role of Credibility and Policy Coordination,” IMF, World
Economic Outlook (April 2010)
(b) Supplementary reading
Gavyn Davies, “The World’s Economic Centre of Gravity” ft.com/alphaville (23/3/2011)
Martin Wolf, “Two Cheers for China’s Rebalancing”, FT (3/4/2012)
P. Krugman, “Currency Wars and the Impossible Trinity” (9/5/2011)
http://krugman.blogs.nytimes.com/2011/05/09/currency-wars-and-the-impossible-trinitywonkish/?emc=eta1