Download ECON 202: APPLIED INTERNATIONAL MACROECONOMICS

ECON 202: APPLIED INTERNATIONAL MACROECONOMICS
Professors Osler, Munsell
Brandeis International Business School, Spring 2017
Mondays and Wednesdays, 11:00-12:20 and 12:30-1:50, Lee Hall
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[email protected]
[email protected]
Osler: http://people.brandeis.edu/~cosler
Tuesdays, 11:30 - 12:30 pm
Drop by or schedule an appointment
Next to the Ph.D. computer cluster
Sachar 205 (third floor)
Your Teaching Assistants
Layla Zhang
Yaoxi Ding
Yibo Wu
[email protected]
[email protected]
[email protected]
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OVERVIEW
In this course you will learn how to analyze economies around the world. That is, you will learn
important conceptual frameworks and practice applying them: What can Europe do to rejuvenate
its economy? Why worry about Europe’s deflation? Why is China allowing its exchange rate to
move more flexibly and restructuring its economy? What is quantitative easing and why do
countries use it? Why aren’t resource-rich economies like Nigeria better off?
The course differs from standard macroeconomics courses in at least four ways. First, it views
economics as an activity, not just a set of concepts. You will practice applying economic
principles to real-world situations in problem sets, exams, and in memos focused on a specific
country of your choice. Everything you learn in class will be accompanied by real-world
examples.
Second, you will discuss countries from every continent and at every stage of development and
you’ll be thinking throughout about how they’re linked internationally. Third, you’ll learn about
how macroeconomic stability is influenced by banks and financial markets and how financial
regulation can promote macroeconomic stability. Fourth, you’ll learn important skills used by
practicing economists for analyzing and presenting data, writing clearly, and team management.
OUTLINE OF LEARNING GOALS (specific goals on pages 10-11)
1. Understand long-run interactions among inflation, money, exchange rates, international
competitiveness, and government finances
2. Understand how financial markets influence economic health and how government
regulation of financial markets can either promote or undermine financial stability
3. Understand the forces driving business cycles and how governments influence them
4. Understand how countries manage their exchange rates
5. Understand international capital flows and the balance of payments
6. Worldwide macroeconomic history since WWII
6. Skills for analyzing and presenting data
8. Teamwork skills
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EVALUATION
Grading weights
Country Analysis
20%
Of which
Draft Final Peer Editing
Memo 1
4%
5%
1%
Memo 2
4%
5%
1%
Practice Problems 25%
Midterm exam
20%
Final exam
25%
Class participation 5%
Teamwork
5%
Note: B- is the highest possible grade for “social loafers” or score below 50% on the final exam.
1. Country Analysis: You and three other students will analyze a country of your choice. You
will write 2 memos for a professional portfolio manager. You will provide editing help to a
partner team. Memos are graded equally on style as well as substance.
2. Practice Problems: Macroeconomic concepts are often harder to apply than you’d guess
from the lecture. Practice problems help bridge that gap.

The weakest 2 are dropped in calculating your final grade.

Problem sets are due at the beginning of class. Late arrival to class is not an excuse.

You must explain it in your own words, make your own charts, and create your own
tables. If not, you get a zero.

You may work with others to understand the problems or to learn Excel techniques.
3. In-class midterm exam: Monday, March 13. YOU MUST BE THERE. NO
EXCEPTIONS except medical emergencies. You will analyze a specific country using a
chart package distributed one day in advance.

You can enhance your mid-term grade by submitting a glossary of ORIGINAL
definitions for 100 vocabulary words. Up to 15 extra points.
4. Final exam: Comprehensive, closed book. You will analyze a specific country using a chart
package distributed one day in advance. DO NOT MAKE TRAVEL PLANS UNTIL THE
TIME IS FINALIZED BY THE REGISTRAR
5. Class participation: Depends on attendance, effort to answer pre-class questions, and
contributions to Thoughts and Questions.
 Attendance: You may miss at most 2 classes without adverse consequences. Please
explain absences in advance if possible.
 Pre-class questions: Take them seriously, they’re there to help you learn
 Contributions to class discussion: PLEASE ask for clarification, share relevant
experiences, pose constructive questions, or explain why you disagree (politely).
 Thoughts and Questions: WHAT DO YOU THINK?! Tell it like it is. Roughly every
other class you will be asked for your questions about the material covered in class and
your reflections on the material. This is your opportunity to shape the course to your
needs and preferences – Go for it!
6. Teamwork: You will be graded on your contributions to the country project team, based on
evaluations from your teammates AND on your peer editing contributions. Details below and in
“Managing Team Performance.”
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DUE DATES
(PS = Problem Set)
W. Jan. 18: Resumé
M. Jan 23: PS 1, Team country choice
W. Jan. 25: Team performance plan,
planning grid
M. Jan. 30: PS 2
W. Feb. 1: PS 3
M. Feb. 6: PS 4
W. Feb. 8: Nothing due (Begin editing
Memo 1 by now)
M. Feb. 13: PS 5
W. Feb. 15: Country Charts +
Memo 1 to peer editing
M. Feb. 27: PS 6
W. Mar. 1: Country Charts + Memo 1 final
M. Mar. 6: PS 7
W. Mar. 8: PS 8
M. Mar. 13: MID-TERM EXAM
W. Mar. 15: Nothing due
M. Mar. 20: PS 9
W. Mar. 22: PS 10
M. Mar. 27: PS 11
W. Mar. 29: PS 12
M. Apr. 3:
W. Apr. 5:
PS 13
Nothing due (Begin editing
Memo 2 by now)
W. Apr. 19: PS 14
M. Apr. 24: Memo 2 to peer editing
W. Apr. 26: PS 15
M. May 1: PS 16
W. May 3: Memo 2 final
By Mon. May 8: Teammate evaluations, Team
performance review
“MT” = Midterm.
Mon
Wed
Mon
Jan.
Wed
Mon
Wed
Mon
18
23
25
30
13
15
Feb.
1
6
8
March
1
6
8
April
3
5
May
1
3
13-MT 15
19
Wed
Mon
Wed
27
20
24
22
27
29
26
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WORKLOAD: Success in this four- credit course is based on the expectation that students will
spend a minimum of 9 hours per week studying the lecture notes, completing assignments,
preparing for exams, etc.
DISABILITIES: If you are a student with a documented disability on record at Brandeis and
wish to have a reasonable accommodation made for you in this class, please see me immediately.
ACADEMIC INTEGRITY: You are expected to be honest in all of your academic work.
Instances of alleged dishonesty will be forwarded to the Academic Review Committee. Potential
sanctions include failure in the course and suspension from the University. The University’s
policies on academic integrity are here: ttp://www.brandeis.edu/studentlife/sdje/ai/.
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COUNTRY ANALYSIS: DETAILS
2 Memos: You will analyze a country of your choice with three other students. Details online.
1. An actively-managed mutual fund is considering investing in the country you are
studying. As such, it recognizes the need to forecast your country’s exchange rate vis-àvis the US dollar over its investment horizon of 1 to 3 years.
a. What economic factors should the investment committee consider when making
these forecasts?
b. How strongly can the investment committee rely on these forecasts?
2. The university’s endowment fund takes a 10-year perspective on returns and risk. It is
deciding whether to invest in the country you are studying. The investment committee
needs to know
a. Is the economy well-managed and stable?
i. Are the fiscal and monetary authorities doing a good job?
ii. Is there potential for financial excess and associated macro instability
over the next decade. Is this country’s banking system well-regulated?
b. Is output growth likely to be low or high, on average? What are the country’s
structural advantages and structural obstacles to growth?
Peer editing: Teams will help each other edit. Your team will submit its first drafts to a partner
team, which will submit its first drafts to your team. Each member of your team will evaluate
one of four dimensions of the other team’s memo. These dimensions are described in
“Guidelines for Country Memos” on Latte.
NOTE: EVERYTHING you submit must be your own words. No quotes are allowed in
Applied International Macroeconomics. Copied text is extremely easy to identify.
Country Analysis Timeline
I.
Meet your team Thursday or Friday, January 19-20. Schedule a meeting or two over the
next few days to begin developing a performance plan and a detailed planning grid. Consult
“Managing Team Performance” and the country analysis material on Latte to learn what is
expected. BE SURE TO INCORPORATE MULTIPLE DAYS FOR EDITING BEFORE
ANY SUBMISSION DEADLINE.
II.
Tell Professor Osler your country choice by Monday, January 23 More than one group
can study the same country, but the following countries are NOT available in 2017:
Argentina
Canada
China
France
Indonesia
Iran
Japan
Malaysia
New Zealand
Panama
Peru
Saudi Arabia
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Singapore
Switzerland
Turkey
U.S.
III. Submit detailed performance plan and planning grid by Wednesday, January 25.
IV.
Memo 1
Wednesday, February 8: By now you should have combined any independent work on
Memo 1 and be working together to synthesize the ideas into a coherent, polished essay
Wednesday February 15: Exchange draft of Memo 1 and complete set of professionalquality country charts with peer-editing partner. See “Guidelines for Country Memos” on
Latte.
Wednesday March 1: Submit final version of Memo 1 to Professor Osler.
V.
Memo 2
Wednesday, April 5: By now you should have combined any independent work on Memo
2 and be working together to synthesize the ideas into a coherent, polished essay
Monday, April 24: Exchange draft of Memo 2 with peer-editing partner.
Wednesday, May 3: Submit final Memo 2 to Professor Osler.
VII. Monday, May 8: Evaluate teammates and submit “Process Review Sheet” (p. 20 of
Managing Team Performance)
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TEAMWORK
When you leave IBS, you will work in teams. This course helps you develop essential
teamwork skills. It also teaches norms of professional behavior.
Your team will participate in a structured program of meetings and team activities. Managing
Team Performance gives step-by-step instructions and advice for each critical teamwork skill.
Equity is often a concern in teamwork. You must make substantial direct contributions to the
memos; you must also contribute substantially to team activities like the performance plan.
If you do not contribute equitably, the rest of your team can dismiss you, in which case you
become your own team.
Your grade depends on your performance as a teammate, which your teammates will evaluate
using criteria listed in Managing Team Performance. If your teammates agree that you have not
contributed equitably, your grade for the course cannot exceed “B-.”
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COURSE OUTLINE AND OPTIONAL READINGS
The course lecture notes are your primary readings: There is no textbook
These lecture notes are available on Latte. Last year’s notes are available from the beginning
of the semester. BUT: The order in which material is presented has changed drastically and
in any case the lecture notes are almost always revised before class.
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Excellent resources are listed below for concepts you might find challenging (“Reference”) or
concepts you might want to investigate a greater depth (“Depth”).
“FD” refers to Finance and Development, a glossy magazine with short articles from the
IMF / World Bank.
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I. SUSTAINED INFLATION
I.A.
Sustained Inflation: Origins and Propagation
Reference
Osler: Chapter 2, Inflation Gets Going; Chapter 3, Inflation Takes Off
Depth
Dugger, “In Zimbabwe, Survival Lies in Scavenging,” December 22, 2008
http://www.nytimes.com/2008/12/22/world/africa/22iht-22zimbabwe.18857774.html
Dugger, “Life in Zimbabwe: Waiting for Useless Money,” NYT October 2, 2008
http://www.nytimes.com/2008/10/02/world/africa/02zimbabwe.html?pagewanted=all
Wines, “How Bad is Inflation in Zimbabwe?” NYTimes, May 2, 2006.
http://www.nytimes.com/2006/05/02/world/africa/02zimbabwe.html
Gupta, “Price controls and scarcity for Venezuelans to turn to the black market for milk
and toilet paper,” The Guardian April 15, 2015
http://www.theguardian.com/global-development-professionals-network/2015/apr/16/venezuelaeconomy-black-market-milk-and-toilet-paper
The nature of money: Large stones under water?
http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money?act=0
I.B.
Money, Government Deficits, and High Sustained Inflation
Depth
The Fed's interpretation: “Fedpoints: Reserve Requirements” (Latte)
Indonesia - Sabirin supported by Indonesia Central Bank 02, Latte
Bruce Bartlett, “Supply Side Economics to Go,” NYT 4/6/07. On Latte.
An arch-conservative identifies fatal flaws in tax-cut logic.
I.C.
Nominal Anchors to Control Inflation
Reference
Husted/Melvin International Economics Chapter 14 (PPP)
Husted/Melvin International Economics Chapter 19 ONLY through “Floating Exchange
Rates: Since 1973” (International monetary history including the gold standard)
Husted/Melvin International Economics Chapter 13 ONLY sections on “Exchange Rate
Supply and Demand and Intervention” and “Black Markets and Parallel Exchange Rates”
Taylor (2004). “Global Finance: Past and Present. Policymakers in Two Eras Faced the
Same Trilemma of Difficult Policy Trade-Offs,” Finance and Development, March
2004: http://www.imf.org/external/pubs/ft/fandd/2004/03/pdf/taylor.pdf
“Introduction to Currency Boards” http://users.erols.com/kurrency/intro.htm
Reem Heakal: “What is a currency board?” http://www.investopedia.com/articles/03/051503.asp
Jahan, Sarwat (2012). “Inflation Targeting: Holding the Line. “ Finance and
Development (March 28, 2012). http://www.imf.org/external/pubs/ft/fandd/basics/target.htm
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Depth
Clement Manirabarusha (2016). “Burundi faces foreign exchange shortage as aid dries
up, crisis grinds on.” Reuters, Jul 22, 2016. http://www.reuters.com/article/us-burundieconomy-idUSKCN1021JZ
Czech National Bank: “Objective of Monetary Policy”
http://www.cnb.cz/en/monetary_policy/objective.html
Current consensus on state-of-the-art monetary policy making
“A Primer on Central Bank Independence,” Cecchetti and Schoenholtz
http://www.e-axes.com/content/primer-central-bank-independence
“Why the Fed Focuses on Core Inflation.” Joshua Zumbrun, Bloomberg,
March 30, 2011. http://www.bloomberg.com/news/2011-03-30/bernanke-backed-by-historybetting-volatility-variable-won-t-hurt-economy.html
II. FINANCIAL CRISES
II.A. International Debt Crises
Reference
Husted/Melvin International Economics Chapter 12 (Balance of Payments Accounting)
Husted/Melvin International Economics Chapter 15, ONLY “Interest Parity” material
Reem Heakal, “What is the balance of payments?”
http://www.investopedia.com/articles/03/060403.asp
Kahn Academy on the balance of payments (Note: Uses “capital account” instead of
“financial account”)
https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currentcapital-account/v/balance-of-payments-current-account
https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currentcapital-account/v/balance-of-payments-capital-account
https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currentcapital-account/v/why-current-and-capital-accounts-net-out
ECB. “Carry Trades and Exchange Rates”
https://www.ecb.europa.eu/pub/pdf/other/mb201003_focus10.en.pdf
Depth
Illustration: Expected monetary policy affects current exchange rates. “Exchange rates
and anticipated monetary policy,” RBS, Latte.
Accominotti, Olivier , and Barry Eichengreen (14 September 2013). “The mother of all
sudden stops: Capital flows and reversals in Europe, 1919-1932.”
http://voxeu.org/article/mother-all-sudden-stops
Feldstein, Martin, “Avoiding Currency Crises,” http://www.nber.org/feldstein/kcfed99.2.pdf
Ghosh and Ramakrishnan, Current Account Deficits: Is There a Problem? FD, no date
http://www.imf.org/external/pubs/ft/fandd/basics/current.htm
“Coping with Capital Inflows,” FD September 2010
http://www.imf.org/external/pubs/ft/fandd/2010/09/dataspot.htm
II.B.
Banking Crises
Reference
Kindleberger-Aliber, Manias, Panics, Crises: Chapters 1, 2, & 3 (beginning at
“Speculation often develops in two stages”).
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Colombo, Jesse (June 4th, 2012) . “Japan’s Bubble Economy of the 1980s.”
http://www.thebubblebubble.com/japan-bubble/
Spriha Svivastava (15 Sep. 2016). “On this day 8 years ago, Lehman Brothers collapsed:
Have we learned anything? CNBC. http://www.cnbc.com/2016/09/15/on-this-day-8-years-agolehman-brothers-collapsed-have-we-learned-anything.html
Depth
Old-style crisis: Iceland, Chapter 2: “Summary of the Report’s Main Conclusions”
regarding the causes of the collapse of the Icelandic banks.” (18 pages)
New-style crisis: UK. Gorton: “Question and Answers about the Financial Crisis,” Latte.
Husock, “Housing Goals We Can’t Afford,” NYT, December 11, 2008.
http://www.nytimes.com/2008/12/11/opinion/11husock.html
Reinhardt, “An Economist’s Mea Culpa,” NYT January 9, 2009.
http://economix.blogs.nytimes.com/2009/01/09/an-economists-mea-culpa/
II.C. Promoting Financial Stability
Depth
Shin,Hyun Song (January 31, 2009). “It is time for a reappraisal of the basic principles of
financial regulation.” http://voxeu.org/article/financial-regulation-built-sand-today-smicroprudential-regulation-rules-need-macroprudential-complements
Many economists: Letter published in the Financial Timeson November 9, 2010.
“Healthy Banking System is the Goal, not Profitable Banks.”
https://www.gsb.stanford.edu/faculty-research/excessive-leverage/healthy-banking-system-goal
Er, Ricki Tigert (March 1999). “What Deposit Insurance Can and Cannot Do.” Finance
and Development Volume 36. http://www.imf.org/external/pubs/ft/fandd/1999/03/tigert.htm
IV.
RECESSIONS, UNEMPLOYMENT, AND DEFLATION
A. What happens to business, employment, and inflation in recessions?
Depth
Social, psychological, and health costs of unemployment:
http://www.theatlantic.com/magazine/archive/2010/03/how-a-new-jobless-era-willtransform-america/7919/
“Deflation: Why Europe’s Problem is Everyone’s Problem” Knowledge@Wharton
2/4/15 knowledge.wharton.upenn.edu/article/europes-deflation-problem-is-everyones-problem/
Bartlett, “The Harsh Impact On Consumption Of Lost Home Equity.” Forbes, 2/6/09
http://www.forbes.com/2009/02/05/spending-housing-equity-opinionscolumnists_0206_bruce_bartlett.html?partner=daily_newsletter
Economist: “Statistics in Argentina: Fishy Figures” Sept. 17, 2014
http://www.economist.com/blogs/americasview/2014/09/statistics-argentina
B. Strategies to address unemployment and deflation: Fiscal policy
There has been a ton of research in recent years on the size of fiscal multipliers. You
will read and summarize 1 of the following 4 papers for a homework assignment.
PAPER: Multipliers. Sahm, Shapiro, Slemrod: Household Response to the 2008 Tax
Rebates: Survey Evidence and Aggregate Implications.” On Latte. Intro. only!
PAPER: “Assessing the Short-Term Effect on Output of Changes in Fiscal Policies,”
Reichling and Whalen, CBO Working paper May 2012. Latte.
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PAPER: “Fiscal Multipliers and the State of the Economy,” Baum, Poplawski,
Weber, IMF Working Paper December 2012.
PAPER: “The Household Effects of Government Spending,” Giavazzi, McMahon,
Working Paper February, 2012. Latte.
Depth
Central Bank of Turkey, “Disinflation Program 2000 short” Latte
Turkey explains why less is sometimes more in government spending
Osler, “Greece illustrates the importance of staying within limits”
http://blogs.lse.ac.uk/europpblog/2015/09/01/greece-illustrates-the-importance-of-staying-withineconomic-limits/
Congressional Budget Office: “Long-term Budget Outlook in 26 Slides.”
http://www.cbo.gov/publication/45527?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm
_content=812526&utm_campaign=Hourly_2014-07-16%2014%3a00
IMF, “Fiscal Rules,” pages 1-14. On Latte.
Lastrapes, “Explainer: What’s the debt ceiling and why it’s an obsolete way to
control spending.” The Conversation, October 27, 2015.
http://theconversation.com/explainer-whats-the-debt-ceiling-and-why-its-an-obsolete-way-to-controlspending-49633
Mourmouras, Financial Times, “The price of austerity for indebted Greece,” January 16,
2012 http://www.ft.com/intl/cms/s/0/02af6316-4034-11e1-82f6-00144feab49a.html#axzz1jinARbVd
Pollin, Robert, “Austerity is Not a Solution: Why the Deficit Hawks Are Wrong,”
Challenge (Magazine), November/December 2010.
http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP235.pdf
C. Strategies to address unemployment and deflation: Monetary policy
Reference
What is quantitative easing? The Economist Explains, May 9, 2015
http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-5
Depth
Vinals, “A marriage made in heaven or in hell: Monetary and financial stability,”
Latte. 2 pages.
Coppola, 2014. “QE has (nearly) ended. But how will the Fed unwind it?” Forbes 10/8.
http://www.forbes.com/sites/francescoppola/2014/10/08/qe-has-nearly-ended-but-how-will-the-fedunwind-it/
“Policy Duration Commitments: Part I, Categorisation” RBS, July 29, 2013. Latte
Instability in US money demand persisits:”The Money Supply,” Federal Reserve Bank of
New York FedPoint. (2 pages)
http://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html
“Why Draghi was Right to Cut Rates” Wolf, Financial Times, Nov 12, 2013
Trehan & Zorrilla, “The Financial Crisis and Inflation Expectations,” Federal Reserve
Bank of San Francisco Economic Letter, Sept. 24, 2012.
http://www.frbsf.org/publications/economics/letter/2012/el2012-29.html
D. Strategies to address unemployment and deflation: Exchange rate management
Krugman, Paul (Jun 24, 2012). Revenge of the Optimum Currency Area.
http://krugman.blogs.nytimes.com/2012/06/24/revenge-of-the-optimum-currency-area/?_r=0
Stone, Anderson, Veyrune, “Exchange-Rate Regimes: Fix or Float?”
http://www.imf.org/external/pubs/ft/fandd/2008/03/pdf/basics.pdf
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Masson and Patillo, “A Single Currency for Africa?”
http://www.imf.org/external/pubs/ft/fandd/2004/12/pdf/masson.pdf
Vostroknutova, Brahmbhatt, Canuto, “Dealing with Dutch Disease,” Vox EU
21 June 2010 http://www.voxeu.org/article/dealing-dutch-disease
Economist on Dutch Disease, “Gas discoveries in east Africa: Making the most of a good
situation.” Feb 7, 2013. http://www.economist.com/blogs/baobab/2013/02/gas-discoveries-eastafrica
Nier, Sedik, Mondino, “Gross Private Capital Flows to Emerging Markets: Can the
Global Financial Cycle Be Tamed?” IMF working paper October 2014. ONLY
introduction and conclusion! https://www.imf.org/external/pubs/ft/wp/2014/wp14196.pdf
“South Korea's currency controls,” Economist June 16, 2010. Latte.
“Latvia’s Internal Devaluation: Success?” Weisbrot & Ray, OECD, 12/2011. Latte
E. Strategies to address unemployment: Structural reform
Depth
“What Structural Reform Is and Why It Is Important,” Economist Magazine Dec. 9, 2014
http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-5
“What’s Broken in Greece? Ask an Entrepreneur,” Thomas, NYT 1/31/11
http://www.nytimes.com/2011/01/30/business/30greek.html?src=me&ref=business
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LEARNING GOALS IN DETAIL
1. Understand long-run interactions among inflation, money, exchange rates, international
competitiveness, and government finances
* Inflation and hyperinflation: Understand how the money supply is related to inflation and
how the relation is influenced by velocity.
* Competitiveness and PPP: Understand how and why competitiveness is mostly stable in the
long run. Understand what this implies for the relation between inflation differentials across
countries and long-run exchange-rate changes and the role of “goods-market arbitrage.”
* Money supply process: Understand how central banks influence money growth through
their control over the money base. Understand how banks and the public affect money growth.
* Understand why high, sustained inflation has always reflected the monetization of high
government deficits, and why this process, when taken to an extreme, ends with governments
that cannot provide for their people (inflation-tax Laffer curve).
2. Understand how financial markets influence macroeconomic health
* How financial intermediaries and financial markets are needed to promote long-run capital
formation and wealth due to imperfect information.
* How inappropriate regulation can undermine the proper functioning of the financial
system: Financial repression; how deregulation or poor regulation has historically often been
accompanied by financial excess that leads to crisis, e.g., 2001-2008.
* Imperative for financial regulation; current best practices.
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* Open issues in financial regulation: CEO pay? Capital-adequacy standards to vary over the
business cycle? Consumer financial protection? Proprietary trading? Too big to fail? Loan-tovalue ratios as policy tool?
3. Understand forces driving unemployment and recessions
* How exchange rates and interest rates are related through uncovered interest parity.
* Components of aggregate demand and how they tend to behave over the business cycle
* How central banks influence aggregate demand through the real short-term interest rate.
* Expectations-augmented Phillips curve: How short-run inflation is influenced by expected
inflation and the state of the business cycle.
* Inflation targeting and, more generally, the monetary policy reaction function: What drives
central banks in setting the short-run real interest rate?
* Sustainability of government deficits and debt; why sustainability becomes harder to
achieve the longer a country waits to achieve it.
* Zero lower bound; why it is essential to avoid deflation; what central banks do to stimulate
the economy once short-term nominal interest rates hit zero.
4. Understand how countries manage their exchange rates
* How central banks control exchange rates and the fact that a fixed exchange rate leaves the
central bank largely unable to pursue any other monetary policy goals.
* Difference between sterilized and unsterilized exchange rate intervention; different ways to
sterilize; the motivation for sterilization; and the extent to which sterilized intervention actually
works. Which countries tend to intervene and to sterilize today.
* Differences across the following exchange rate regimes and their permutations: Common
currency, dollarization, currency board, peg, band, crawling peg, crawling band, managed
exchange rate, dirty float, free float.
* New and old attitudes towards capital controls; why they need to be temporary.
5. Understand international capital flows and the balance of payments
* 4 major components of the balance of payments: Current account, financial account, capital
account, net errors & omissions.
* Relationship between national savings, national investment and the current account.
* Subcomponents of national savings: Personal, corporate, government. What drives each.
Why measured personal savings rates tend to fall when asset prices rise rapidly.
* A country’s net international investment position (NIIP) and the relation of NIIP to past
and future current account balances, including net income from capital.
6. Worldwide macroeconomic history since WWII: Most significant elements
* Emerging markets stressed equally with developed countries
7. Skills for analyzing and presenting data
* Ways to calculate growth rates and when each one is appropriate
* Different ways to graph macroeconomic data and when each one is appropriate
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* Familiarity with different sorts of data and when to use each type
* Professional-quality charts
* Executive memo-writing
* Editing text for clarity, conciseness, organization, flow, and tone.
8. Teamwork skills
* Performance plan, planning grid, process review, peer editing, performance evaluation
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