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Spring 2014 Draft as of Sep.23, 2013 Syllabus ITRN 503-005 Investment and Macroeconomics for International Commerce Course Outline: This course introduces you to important concepts and analytical tools frequently used by economists to tackle a range macroeconomic issues that are relevant to businesses, governments and households. It examines issues relating to long-term growth as well as business cycles. Significant attention is paid to macroeconomic stabilization (fiscal and monetary policy). The course also introduces some basic open macro economy issues such balance of payments, exchange rates and currency crises. The focus of the course is on understanding definitions and developing coherent analytical frameworks to tackle contemporary macroeconomic policy challenges. Unlike narrow discipline-oriented courses that only focus on analytics, this course consciously links the analytics to real world on goings and policy issues and conundrums (and therefore can be somewhat challenging). Since this is a graduate level course with only one lecture per week, significant degree self-study, reading and initiative is expected. The course is fairly intensive and students are expected to have fully read the assigned textbook readings before class. Lecturer: Professor Ramkishen Rajan E-mail: [email protected] Website: http://ramkishenrajan.gmu.edu/ Teaching Assistant: Sasidaran Gopalan Email: [email protected] Office Hours: Anytime by appointment. Lecture Time: Wednesday, 4:30-7:00pm Lecture Venue: FH 313 Office Hours: Wednesdays, 3.00 – 4.00pm; Thursdays, 6.00-7.00pm or by appointment. (Do not leave phone messages; best to e-mail me). Readings: Required Text: P. Krugman and R. Wells (2012). Macroeconomics, Worth. (KW) as well as weekly assigned readings (see URLs end of the syllabus). Assessment: Mid-term (25%); Open book. Final Exam (40%); Closed book. One country Assignment (20%) – Groups of 3. Presentation and Class participation (15%) Important Information on Grading: Grades in this class have to be earned; they are not an entitlement and neither are they negotiable. I have high standards and in larger classes, it is unlikely (but by no means 1 Spring 2014 Draft as of Sep.23, 2013 impossible) that more than 30 percent of the class will get an “A” or “A-” grade (i.e. sign of good performance in my class). Learning Outcomes: Students will understand the basic concepts and terms of macroeconomics (such as growth, inflation) as they apply to policy analysis (such as monetary policy, fiscal policy, exchange rate policy). Students will understand the causes of economic growth, unemployment and inflation and issues impacting the effectiveness of monetary and fiscal policy, and be introduced to open economy topics like relating to capital flows and exchange rates. SPP Policy on Plagiarism: The profession of scholarship and the intellectual life of a university as well as the field of public policy inquiry depend fundamentally on a foundation of trust. Thus any act of plagiarism strikes at the heart of the meaning of the university and the purpose of the School of Public Policy. It constitutes a serious breach of professional ethics and it is unacceptable. Plagiarism is the use of another’s words or ideas presented as one’s own. It includes, among other things, the use of specific words, ideas, or frameworks that are the product of another’s work. Honesty and thoroughness in citing sources is essential to professional accountability and personal responsibility. Appropriate citation is necessary so that arguments, evidence, and claims can be critically examined. Plagiarism is wrong because of the injustice it does to the person whose ideas are stolen. But it is also wrong because it constitutes lying to one’s professional colleagues. From a prudential perspective, it is short-sighted and self-defeating, and it can ruin a professional career. The faculty of the School of Public Policy takes plagiarism seriously and has adopted a zero tolerance policy. Any plagiarized assignment will receive an automatic grade of “F.” This may lead to failure for the course, resulting in dismissal from the University. This dismissal will be noted on the student’s transcript. For foreign students who are on a university-sponsored visa (e.g. F-1, J-1 or J-2), dismissal also results in the revocation of their visa. To help enforce the SPP policy on plagiarism, all written work submitted in partial fulfilment of course or degree requirements must be available in electronic form so that it can be compared with electronic databases, as well as submitted to commercial services to which the School subscribes. Faculty may at any time submit student’s work without prior permission from the student. Individual instructors may require that written work be submitted in electronic as well as printed form. The SPP policy on plagiarism is supplementary to the George Mason University Honor Code; it is not intended to replace it or substitute for it. (http://www.gmu.edu/facstaff/handbook/aD.html) Special Needs: If you are a student with a disability and you need academic accommodations, please see me and contact the Disability Resource Center (DRC) at 993-2474. All academic accommodations must be arranged through the DRC. 2 Spring 2014 Draft as of Sep.23, 2013 Time Course Outline* (See lecture notes for specific chapter readings) Topic Week 1: Jan. 22 Math Refresher, Course Preliminaries and Introduction to Macroeconomics Week 2: Jan. 29 Week 7: Mar.5 Identities, Concepts, Definitions KW: Chapters 1,2 (skim through yourself) KW: Chapters 6, 7, 8, 16 Business Cycle and Growth KW: Chapter 9 Introduction to Aggregate Supply (AS) and Aggregate Demand (AD) Model KW: Chapters 11 and 12 AS-AD model (continued) KW: Chapter 12 (continued) Fiscal Policy KW: Chapter 10 and 13 (including Appendix) Fiscal Policy Contd. KW: Chapter 10 and 13 (including Appendix) Mid-Term Test (In-Class; Open Book) Week 8: Mar.12 Spring Recess Week 9: Mar.19 Introduction to Monetary Policy KW: Chapter 14 Monetary Policy continued KW: Chapters 15 (exclude Appendix) and 17 Basics on Yield Curve Week 3: Feb.5 Week 4: Feb.12 Week 5: Feb. 19 Week 6: Feb.26 Week 10: Mar.26 Week 11: Apr.2 Week 12: Apr.9 Week 14: Apr.23 External Dimensions of Macroeconomics KW: Chapter 19 External Dimensions of Macroeconomics continued KW: Chapter 18 Country Paper Presentations Week 15: Apr.30 Semester Review Week 16: May.7 Final Exam (In-Class; Closed Book); Country Assignment due Week 13: Apr.16 *This outline is subject to some alterations during the course of the semester. 3 Spring 2014 Draft as of Sep.23, 2013 Required Readings (Apart from Assigned Text-book chapters) Week 1: Basics Math refresher: http://www.stat.wisc.edu/~ifischer/calculus.pdf Duke, Elizabeth A., Economic Developments, Risks to the Outlook, and Housing Market Policies, at the Virginia Bankers Association/Virginia Chamber of Commerce 2012 Financial Forecast, Richmond, Virginia, January 6, 2012. http://www.federalreserve.gov/newsevents/speech/duke20120106a.htm Week 2: Definitions and Concepts Bergheim, Stefan, “Measures of Well-Being: There is more to it than GDP,” Deutsche Bank Research, 2006. http://www.dbresearch.com/PROD/DBR_INTERNET_ENPROD/PROD0000000000202587.pdf Bullard, J. “Measuring Inflation: The Core is Rotten,” Federal Reserve Bank of St.Louis Review, July/August 2011. http://research.stlouisfed.org/publications/review/11/07/bullard.pdf Bullard, J. “CPI vs. PCE Inflation: Choosing a Standard Measure,” The Regional Economist, July 2013. http://www.stlouisfed.org/publications/re/articles/?id=2390 Callen, Tim “What is GDP?” December 2008. http://www.imf.org/external/pubs/ft/fandd/2008/12/basics.htm Claessens, Stjin and M. Ahyan Kose.”What is a Recession?”, Finance and Development, March 2009. http://www.imf.org/external/pubs/ft/fandd/2009/03/basics.htm Mishkin, Fredric S., “Headline versus Core Inflation in the Conduct of Monetary Policy,” Remarks at the Business Cycles, International Transmission and Macroeconomic Policies Conference, Montreal, Canada, 2007. http://www.federalreserve.gov/newsevents/speech/mishkin20071020a.htm Felix, A. and K. Watkins (2013). “What is Behind the Inflation Numbers?,” Federal Reserve Bank of Kansas City, Denver, http://www.kansascityfed.org/publicat/rme/RME-2Q2013.pdf Weeks 3 and 4: Long-term Growth and Productivity; AS-AD Model Bernanke, Ben, “Recent Developments in the Labor Market,” At the National Association for Business Economics Annual Conference, Washington, D.C., March 2012. http://www.federalreserve.gov/newsevents/speech/bernanke20120326a.htm 4 Spring 2014 Draft as of Sep.23, 2013 Bies, Susan Schmidt, “Productivity and Economic Outlook,” Remarks before the Tech Council of Maryland’s Financial Executive Forum, 2006. http://www.federalreserve.gov/newsevents/speech/Bies20060118a.htm Gordon, Robert. “Is US Economic Growth Over? Faltering Innovation Confronts the Six,” VoxEU 2012. http://www.voxeu.org/article/us-economic-growth-over Levine, Linda, “Economic Growth and the Unemployment Rate,” CRS Report for Congress, April 2012. http://fpc.state.gov/documents/organization/189144.pdf Ramirez-Djumena, Natalie and Jair Rodriguez. “The Ingredients of Sustained Growth,” Finance and Development, December 2008. http://www.imf.org/external/pubs/ft/fandd/2008/12/picture.htm Shackleton, Robert (2012). “ Productivity and Growth in CBO’s Forecasts, ” July 31, 2012 http://www.cbo.gov/sites/default/files/cbofiles/attachments/CBOForecast_NABE_Present ation_07-31-12.pdf AS-AD Model Bernanke, Ben S., “Energy and the Economy,” Remarks before the Economic Club of Chicago, 2006. http://www.federalreserve.gov/newsevents/speech/bernanke20060615a.htm Bernanke, Ben S. “The Near- and Longer-Term Prospects for the U.S. Economy,” At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 26, 2011. http://www.federalreserve.gov/newsevents/speech/bernanke20110826a.htm Weeks 5 and 6: Fiscal Policy Austin, Andrew, D. “Overview of the Federal Debt,” CBO, May 12. http://fpc.state.gov/documents/organization/168673.pdf Bernanke, Ben, “Fiscal Sustainability,” at the Annual Conference of the Committee for a Responsible Federal Budget, Washington, D.C., June 14, 2011. http://www.federalreserve.gov/newsevents/speech/bernanke20110614a.htm Douglas W. Elmendorf., “The Long-term Budget Outlook,” CBO, June 2012. http://www.cbo.gov/sites/default/files/cbofiles/attachments/LTBO_Testimony.pdf Horton, Mark and Asmaa El-Ganainy, “What is Fiscal Policy?”, Finance and Development, June 2009. http://www.imf.org/external/pubs/ft/fandd/2009/06/pdf/basics.pdf Labonte, Marc, “The Economic Implications of the Long-Term Federal Budget Outlook,: CBO, August 2011. 5 Spring 2014 Draft as of Sep.23, 2013 http://fpc.state.gov/documents/organization/171384.pdf Laffer, Arthur, B., “The Laffer Curve: Past, Present, and Future”, The Heritage Foundation, June 2004. http://s3.amazonaws.com/thf_media/2004/pdf/bg1765.pdf Levit, Mindy R. “The Federal Budget: Issues for FY2013 and Beyond,” CRS, May 2012 http://www.fas.org/sgp/crs/misc/R42362.pdf Thornton, D. “The U.S. Deficit/Debt Problem: A Longer-Run Perspective,” Federal Bank of St. Louis, November/December 2012. http://research.stlouisfed.org/publications/review/12/11/Thornton.pdf Week 7: Mid-term Test Week 8: Spring Recess Weeks 9 and 10: Monetary Policy Bernanke, Ben, “Housing, Housing Finance, and Monetary Policy,”, Testimony before At the Federal Reserve Bank of Kansas City's Economic Symposium, Jackson Hole, Wyoming, 2007. http://www.federalreserve.gov/newsevents/speech/Bernanke20070831a.htm Bernanke, Ben, “Five Questions about the Federal Reserve and Monetary Policy,” at the Economic Club of Indiana, Indianapolis, Indiana, October 1, 2012. http://www.federalreserve.gov/newsevents/speech/bernanke20121001a.htm Federal Reserve Bank of San Francisco, “US Monetary Policy: An Introduction,” 2004. http://www.frbsf.org/publications/federalreserve/monetary/MonetaryPolicy.pdf Carlstrom, Charles T. and Timothy S. Fuerst, “The Taylor Rule: A Guidepost for Monetary Policy?” Cleveland Fed, July 2003. http://www.clevelandfed.org/research/commentary/2003/0703.pdf Financial Crisis and Monetary Policy Time-line of the Crisis http://www.newyorkfed.org/research/global_economy/Crisis_Timeline.pdf Bernanke, Ben S. “The Federal Reserve's Balance Sheet,” at the Federal Reserve Bank of Richmond 2009 Credit Markets Symposium, Charlotte, North Carolina, April 3, 2009. http://federalreserve.gov/newsevents/speech/bernanke20090403a.htm Bernanke, Ben S. “The Effects of the Great Recession on Central Bank Doctrine and Practice,”at the Federal Reserve Bank of Boston 56th Economic Conference, Boston, Massachusetts, October 18, 2011 http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm Dodd, Randall and Paul Mills, Outbreak: U.S. Subprime Contagion,” Finance and Development, June 2008. 6 Spring 2014 Draft as of Sep.23, 2013 http://www.imf.org/external/pubs/ft/fandd/2008/06/dodd.htm The Economist, “QE, or not QE? An assessment of the most controversial weapon in the central banker’s armoury,” July14th 2012. http://www.economist.com/node/21558596 Also look at Fed NY: http://www.ny.frb.org/ Week 11: Yield Curve Yield Curve Basics http://www.learningmarkets.com/Stocks-InvestingBasics/200907081026/understanding-the-yield-curve.html Yield Curve Analytics http://fixedincome.fidelity.com/fi/FIHistoricalYield Benner, Kate, “Old Conundrum, New Twist: Inverted or Flat, the Yield Curve Points to a Weaker Federal Reserve, Not a Downturn”, July 2004. http://money.cnn.com/2005/07/12/markets/bondcenter/bond_yields/index.htm?cnn=ye s. Bernanke, Ben S., “Reflections on the Yield Curve and Monetary Policy,” before the Economic Club of New York, New York, New York, March 2006. http://www.federalreserve.gov/newsevents/speech/bernanke20060320a.htm Bernanke, Ben S., “Globalization and Monetary Policy,” At the Fourth Economic Summit, Stanford Institute for Economic Policy Research, Stanford, California http://www.federalreserve.gov/newsevents/speech/Bernanke20070302a.htm Weeks 12 and 13: Open Economy Macroeconomics Catao, Luis A.V. Why Real exchange Rates?” Finance and Development, September 2007. http://www.imf.org/external/pubs/ft/fandd/2007/09/pdf/basics.pdf The Economist, “The Big Mac Index,” February 1, 2007. http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005 Heakal, Reema, “Understanding the Current Account,” Investopedia. http://www.investopedia.com/articles/03/061803.asp Neary, Peter. “Purchasing Power Parity,” May 2004. http://users.ox.ac.uk/~econ0211/papers/pdf/ppp.pdf Pakko, Michael, R. and Patricia S. Pollard, “Burgernomics: A Big Mac Guide to PPP,” The Federal Reserve Bank of St. Louis, November/December 2003. http://research.stlouisfed.org/publications/review/03/11/pakko.pdf Stein, Herbert, “Balance of Payments,” The Concise Encyclopedia of Economics. http://www.econlib.org/library/Enc/BalanceofPayments.html 7