Download Download Syllabus

Columbia Business School
The Future of the World Economy after the Financial
Crisis
January 2015
Abby Joseph Cohen Office Hours: By appointment
Abby Joseph Cohen is a partner at Goldman Sachs in New York. She is senior
investment strategist and president of the Global Markets Institute which is part of
the firm’s investment research division. Her work focuses on the intersection of
economics, financial markets and government policy. Cohen was ranked by
industry surveys as the leading equity market strategist for many years, and her
work has been highlighted in publications including The Economist, The New York
Times, and The Financial Times. Her career is the subject of a Harvard Business
School case study and a BusinessWeek cover story. Cohen is a Presidential
Councillor at Cornell University and served as chair of the board of the Institute of
Chartered Financial Analysts which has more than 100,000 members worldwide.
Cohen has degrees in economics and began her career at the Federal Reserve
Board in Washington, DC.
Pierre Yared Office Hours: By Appointment
Pierre Yared is an Associate Professor of Business at Columbia Business School and
Co-Director of the Richard Paul Richman Center for Business, Law, and Public
Policy at Columbia University. He is a macroeconomist whose research focus is
macroeconomic policy, growth, and political economy. His research has been
published in leading academic journals and has been covered in the Economist,
Foreign Policy, and National Public Radio. Yared is a Faculty Research Fellow of
the National Bureau of Economic Research, a Foreign Editor of the Review of
Economic Studies, and an Associate Editor of the Journal of the European Economic
Association and the International Economic Review. He teaches Global Economic
Environment, a Core MBA course in macroeconomics for which he received the
Dean’s Award for Teaching Excellence. He received his A.B. in Economics from
Harvard University and his Ph.D. in Economics from Massachusetts Institute of
Technology.
General Course Information
This course addresses the main global macroeconomic risks faced by businesses and
governments in the present post-financial crisis era. Some of the questions that we
examine include: What are the risks of future financial crises and what are the
consequences of new financial regulation? Are the large government debts in the
industrialized world going to be problematic over the longer term? What are the main
risks with the path of current monetary policies in different nations? How are
technological innovation and globalization structurally changing the labor market? And
how should companies, government, and workers respond? How is the growth of
emerging economies changing energy and other commodity markets and how is this
impacting the environment? Is the US dollar declining in importance as the world’s
reserve currency?
The class will address these topics as a conversation through which the two faculty
members will highlight the linkages between theory and practice. Since the course draws
heavily from current events, it is critical for students to stay informed about current
macroeconomic news, and active class participation throughout the term is very
important and highly encouraged.
Teaching Assistants
Aditya Mohan ([email protected])
Course Requirements and Grading
Pre-requisites
Global Economic Environment I is required. Global Economic Environment II is
recommended.
Lectures
There will be 5 sequential day-long classes. Class will include student presentations,
discussions of current events, and occasional guest speakers.
Student Presentations
Every student is responsible for taking part in group presentations which will take place
on every day of class. Students will be given time to research a particular topic during
class and will debate the topic with their classmates.
Final Paper
Every student is responsible for a final paper. The final paper is 5-8 pages (not including
figures and charts). The paper must address one of the global macroeconomic policy
issues discussed during the course. Most crucially, the students must take a position
either defending or criticizing current macroeconomic policies (including trade,
regulatory, etc.), and they should utilize economic reasoning along with any available
evidence in making their arguments. The faculty will be available to discuss potential
topics with the students during office hours.
Grading

Final Paper: 50%


Presentation: 20%
Participation: 30%
Course Outline and Readings
Starred items are required. The rest are optional.
Lecture 1: Managing Financial Crises
Issues: What caused the recent global crisis and where are we headed? What are the
different forms that financial crises can take? What is the consequence of financial
regulation for the functioning of the financial markets? How does regulation impact large
versus small firms and large versus small financial institutions?
Readings
Blinder, Alan (2013) After the Music Stopped, Penguin Press.
Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007-2008.
Journal of Economic Perspectives, 23(1), 77-100.
*Gorton, G., & Metrick, A. (2012). Getting up to speed on the financial crisis: A oneweekend reader’s guide. NBER Working Paper 17778.
Gorton, G., & Metrick, A. (2012). Securitized banking and the run on repo. Journal of
Financial Economics, 104(3), 425-451.
*Hanson, S. G., Kashyap, A. K., & Stein, J. C. (2011). A macroprudential approach to
financial regulation. The Journal of Economic Perspectives, 25(1), 3-28.
Kacperczyk, M., & Schnabl, P. (2010). When safe proved risky: Commercial paper
during the financial crisis of 2007-2009. The Journal of Economic Perspectives, 24(1),
29-50.
Philippon, T., & Reshef, A. (2013). An international look at the growth of modern
finance. The Journal of Economic Perspectives, 27(2), 73-96.
Mian, A., Sufi, A., & Trebbi, F. (2010, Jul 11). The political economy of the subprime
mortgage credit expansion. Vox EU.
Mishkin, F. S. (2011). Over the cliff: From the subprime to the global financial crisis. The
Journal of Economic Perspectives, 25(1), 49-70.
Ohanian, L. E. (2010). The economic crisis from a neoclassical perspective. The Journal
of Economic Perspectives, 24(4), 45-66.
*The lure of shadow banking. (2014). The Economist.
*The slumps that shaped modern finance. (2014). The Economist.
Lecture 2: The Future of Monetary Policy
Issues: Did monetary policy play a role in causing the recent crisis and did policy makers
respond appropriately? What should be the Fed’s exit strategy? How does the Fed’s exit
strategy affect advanced economies and emerging markets? Have central bankers become
more political?
Readings
Bernanke, B. S. (2002). Deflation: Making sure “it” doesn’t happen here. Speech before
the National Economists Club, Washington, D. C.
*Bernanke, B. S. (2013). A century of US central banking: Goals, frameworks,
accountability. The Journal of Economic Perspectives, 27(4), 3-16.
Bernanke, B. S. (2015). The Courage to Act: A Memoir of a Crisis and Its Aftermath,
W.W. Norton & Company, New York.
Bernanke, B. S., & Mishkin, F. S. (1997). Inflation targeting: A new framework for
monetary policy? The Journal of Economic Perspectives, 11(2), 97-116.
*Blanchard, O., Dell’Ariccia, G., & Mauro, P. (2010). Rethinking macroeconomic
policy. IMF Staff Position Note 10/03.
Campbell, J. R. (2013). Odyssean forward guidance in monetary policy: A primer.
Federal Reserve Bank of Chicago Economic Perspectives, 37(4), 130-139.
Eichengreen, B. (2014). Does the Federal Reserve care about the rest of the world? The
Journal of Economic Perspectives, 27(4), 87-103.
Gorton, G., & Metrick, A. (2013). The Federal Reserve and panic prevention: The roles
of financial regulation and lender of last resort. The Journal of Economic Perspectives,
27(4), 45-64.
Stein, J. C. (2014). Incorporating financial stability considerations into a monetary policy
framework. Speech at the International Research Forum on Monetary Policy.
Taylor, J. B. (2010). Getting back on track: Macroeconomic policy lessons from the
financial crisis. Federal Reserve Bank of St. Louis Review, May/June 2010, 92(3), 165176.
Lecture 3: Is Current Fiscal Policy in the OECD Sustainable?
Issues: Did the Obama fiscal stimulus work? What were the failures of fiscal and
monetary policy in the Euro zone and where is Europe heading now? Are the large
government debts in the industrialized world going to be problematic over the longer
term?
Readings
Abbas, S. M. A., Belhocine, N., El-Ganainy, A., & Horton, M. (2011, Dec 18). Lessons
from a century of large public debt reductions and build-ups. Vox EU.
*Alesina, A. (2010, Nov 12). Fiscal adjustment and the recession. Vox EU.
Bassetto, M., & Butters, R. A. (2010). What is the relationship between large deficits and
inflation in industrialized countries? Federal Reserve Bank of Chicago Economic
Perspectives, 34(3), 83-100.
Congressional Budget Office. (2014, Feb). Estimated Impact of the American Recovery
and Reinvestment Act on Employment and Economic Output in 2013.
*Carmen Reinhart and financial repression. (2012). The Economist.
The autopilot solution: How notional savings accounts could put state pensions on a
sustainable trajectory. (2013, Feb 2). The Economist.
Horioka, C. Y., Nomoto, T., & Terada-Hagiwara, A. (2014, Jan 21). Why hasn’t Japan’s
massive government debt wreaked havoc (yet)? Vox EU.
Baldacci, E., McHugh, J., & Petrova, I. (2011). Measuring fiscal vulnerability and fiscal
stress: A proposed set of indicators. IMF Working Paper 11/94.
Jorda, O., Schularick, M., & Taylor, A. (2013, Oct 18). Sovereigns versus banks: Crises,
causes and consequences. Vox EU.
Labonte, M. (2012). The Sustainability of the Federal Budget Deficit: Market Confidence
and Economic Effects. Congressional Research Service report for Congress.
Nelson, R. M. (2013). Sovereign Debt in Advanced Economies: Overview and Issues for
Congress. Congressional Research Service report for Congress.
*Rauh, J. (2011). The impact of employee pension promises on state and local public
finance. NBER reporter 2011(1).
Warnock, F. E. (2010, Jun). How dangerous is U.S. government debt? Council on
Foreign Relations.
Lecture 4: Productivity in Advanced Economies
Issues: Why has productivity declined in industrialized countries? Are the productivity
measures accurate? Why are businesses substituting away from workers and investing
more into capital? How is aging and the decline routine employment contributing to the
changes in productivity? To what extent can reforms in immigration, education, and
entitlements change the trajectory for these economies?
Readings
*Aeppel, T. (2015, July 16) Silicon Valley doesn’t believe U.S. productivity is down.
Wall Street Journal.
Age Invaders. (2014, Apr 26). The Economist.
America’s jobless men: Decline of the working man. (2011, Apr 28). The Economist.
Brackfield, D., & Martins, J.O. (2009, July 11). Productivity and the crisis: revisiting the
fundamentals. Vox EU.
*Eichengreen, B., Park, D., & Shin, K., (2015, Sep 17). The global productivity slump:
common and country-specific factors. Vox EU.
Elsby, M. W. L., Hobijn, B., & Sahin, A. (2013). The decline of the U.S. labor share.
Brookings Papers on Economic Activity, 2013(2), 1-63.
*Gopinath, G., Kalemli-Ozcan, S., Karabarbounis, L., &Villegas-Sanchez, C., (2015,
Sep). Low interest rates, capital flows, and declining productivity in South Europe. Vox
EU.
*Jaimovich, N., & Siu, H. (2012, Nov 6). Jobless recoveries and the disappearance of
routine occupations. Vox EU.
Robocolleague. (2013, Mar 2). The Economist.
*Workers’ share of national income: Labour pains. (2013, Nov 2). The Economist.
Lecture 5: Where is Growth Headed in Emerging Markets?
Issues: Is the export-led and manufacturing-intensive growth of emerging markets such
as the BRICs sustainable? How are industrialized nations responding to export
competition from the emerging markets? How is rapid economic growth in emerging
markets connected to rising imbalances? Is the US dollar declining in importance as the
world’s reserve currency?
Readings
Alfaro, L., Kalemli-Ozcan, S., & Volosovych, V. (2011, Oct 29). Upstream sovereigns.
Vox EU.
Almansour, A., Aslam, A., Bluedorn, J., & Duttagupta, R. (2014). On the receiving end?
External conditions and emerging market growth before, during, and after the global
financial crisis. IMF World Economic Outlook April 2014, ch. 4, pp. 113-151.
Bussière, M., Cheng, G., Chinn, M. D., & Lisack, N. (2014, Mar 16). For a few dollars
more: Reserves and growth in times of crises. Vox EU.
*Caballero, R. (2010, Jan 14). The “other” imbalance and the financial crisis. Vox EU.
Choukhmane, T., Coeurdacier, N., & Jin, K. (2014, Jan 22). China’s one-child policy and
saving puzzle. Vox EU.
Eichengreen, B. (2012). International liquidity in a multipolar world. American Economic
Review, 102(3), 207-212.
Eichengreen, B. (2014, Jan 13). A requiem for global imbalances. Project Syndicate.
*Eichengreen, B., Park, D., & Shin, K. (2013, Jan 11). Growth slowdowns redux:
Avoiding the middle-income trap. Vox EU.
Forbes, K. (2014, Feb 5). Turmoil in emerging markets: What’s missing from the story?
Vox EU.
*Frankel, J. (2013, Nov 21). The dollar and its rivals. Project Syndicate.
*Ghosh, A. R., Ostry, J. D., & Tsangarides, C. (2012, Feb 6). Shifting motives:
Explaining the build-up in official reserves in emerging markets since the 1980s. Vox EU.
Gourinchas, P.-O., Rey, H., & Truempler, K. (2012). The financial crisis and the
geography of wealth transfers. Journal of International Economics, 88(2), 266-283.
Haddad, M., & Pancaro, C. (2010, Jul 8). Can real exchange rate undervaluation boost
exports and growth in developing countries? Yes, but not for long. Vox EU.
Hanson, G. H. (2012). The rise of middle kingdoms: Emerging economies in global trade.
The Journal of Economic Perspectives, 26(2), 41-63.
Henry, P.B. (2013). Turnaround: Third World Lessons for First World Growth. Basic
Books.
*Huang, Y. (2012). How did China take off? The Journal of Economic Perspectives,
26(4), 147-170.
Jeanne, O. (2012). The dollar and its discontents. Prepared for the Journal of International
Money and Finance Conference.
Kose, M. A., Otrok, C., & Prasad, E. (2008, Oct 4). Dissecting the decoupling debate.
Vox EU.
Li, H., Li, L., Wu, B., & Xiong, Y. (2012). The end of cheap Chinese labor. The Journal
of Economic Perspectives, 26(4), 57-74.
Mendoza, E. G., & Quadrini, V. (2009, Nov 14). Did financial globalisation make the US
crisis worse? Vox EU.
Middle-income claptrap. (2013, Feb 16). The Economist.
Prasad, E. (2014). The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global
Finance. Princeton University Press.
Rodrik, D. (2009, Dec 17). Making room for China in the world economy. Vox EU.
*Rodrik, D. (2011, Nov 9). Manufacturing is special. Vox EU.
*Song, Z., Storesletten, K., & Zilibotti, F. (2010, May 2). The “real” causes of China’s
trade surplus. Vox EU.
Yang, D. T. (2012). Aggregate savings and external imbalances in China. The Journal of
Economic Perspectives, 26(4), 125-146.
*Zhu, X. (2012). Understanding China’s growth: Past, present, and future. The Journal of
Economic Perspectives, 26(4), 103-124.