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Course Syllabus: International Economics II: International Monetary & Finance Economics UVM EC 146/FALL 2012/RM 127 JEFFRDS/TR 11:30-12:45 PM Prof: John F. Summa, PhD Office: Old Mill, Rm. 229 Office Hours: TR 3:50-5:20 Phone: (802) 846-7509 (c) E-mail: [email protected] Required Text:* International Economics (7th edition), Appleyard, et.al. Required Supplemental Readings: Additional readings will be handed out in class, placed on reserve or posted at Blackboard throughout the semester to supplement sections of the required textbook. * The required text has been ordered by UVM's bookstore and should be available by the start of classes. New and used editions are available through a number of online book vendors, such as Amazon.com and CampusBooks.com. Course Objectives: This course aims to provide students with a solid understanding of the fundamentals of international monetary economics, an increasingly important area of study given growing integration of the world's national economies into a global economic system. Students will acquire fluency with key global financial concepts and relationships, as well as conventional macro models of open economies and related policy issues. Additionally, and perhaps more importantly, students will be encouraged to critically evaluate conventional theories, and consider alternative approaches better able to explain glaring anomalies. Learning Methodology: Class lectures will follow closely the required text, International Economics (Appleyard, et. al.). Students are responsible for material found in the text (as outlined below) and all material presented in lectures (which sometimes go beyond material found in the textbook – therefore attendance is essential to be prepared for exams and homework assignments). The required supplemental readings, to be placed on reserve, and uploaded to Blackboard when possible, will provide additional perspectives on topics covered in the required textbook. Course Outline:** I. Introduction: The Global Economy Today (Chap. 1, Week 1) A. Patterns and composition of global trade B. International monetary dimensions C. Changes in international interdependence II. The International Monetary System – Past, Present, Future (Chap. 29, Weeks 1-2) A. B. C. D. Key features of an effective international monetary system Historical evolution of the international monetary system Purpose of the IMF – strengths and weaknesses Alternative monetary arrangements and reform proposals III. Pre-Classical and Classical Theories of Trade & Finance (Chaps. 2-4, Weeks 2-3) A. B. C. D. E. Mercantilism vs. price-specie-flow mechanism (Chap. 2) Smith and 'absolute advantage' in trade (Chap. 2) Ricardo's 'comparative advantage' principle (Chap. 3) Classical model in money terms (Chap. 4) Wage rate limits and exchange rate limits (Chap. 4) Midterm Exam #1: (Chaps 1-4, 29) Date: TBA IV. Balance of Payments Accounting (Chap. 19, Week 4) A. B. C. D. V. The Foreign Exchange Market (FX) (Chap. 20, Week 5) A. B. C. D. VI. Balance of payments account Balance on current account Merchandise trade balance account International investment position Understanding the FX market Measures of the exchange rate Hedging, speculating and arbitrage in FX markets Spot market versus forward and futures markets International Financial Markets and Instruments (Chap. 21, Week 6) A. Fundamentals of international financial markets B. Interdependence of money markets, interest rates, and FX C. Types and functions of international derivatives VII. Monetary and Portfolio Balance Approaches to External Accounts (Chap. 22, Week 7) A. B. C. D. Supply and demand for money and exchange rates Other financial assets and exchange rate determination International payments positions and other financial assets Exchange rate overshooting of equilibrium positions VIII. Price Adjustments and Balance of Payments Disequilibrium (Chap. 23, Week 8) A. Exchange rate impact on trade, services and goods balances B. Price elasticity of demand and FX market stability C. Price adjustment mechanism under fixed or pegged exchange rates Midterm Exam #2 (Chaps 19-23) Date: TBA IX. National Income and the Current Account (Chap. 24, Week 9) A. Foreign trade in a Keynesian income model B. Impact on savings/investment relationship and multiplier C. National income equilibrium vs. current account equilibrium X. Economic Policy in an Open Economy Under Fixed Exchange Rates (Chap. 25, Week 10) A. General equilibrium in the macro economy (IS/LM/BP model) B. Impact of fiscal policy on income, trade, interest rates C. Impact of monetary policy on income, trade, and interest rates XI. Economic Policy in an Open Economy Under Flexible Exchange Rates (Chap. 26, Week 11) A. Impact of fiscal policy on income, trade, and exchange rates B. Impact of monetary policy on income, trade, and exchange rates C. External economic shocks and flexible exchange rate XII. Prices and Output in an Open Economy (Chap. 27, Week 12) A. Aggregate demand and supply and global transactions B. Economic shocks and policy impact on prices and output C. Macroeconomic adjustment under fixed vs. flexible exchange rates D. Short-run and long-run impact of policy on output and prices XIII. Fixed or Flexible Exchange Rates? (Chap. 28, Week 13) A. Differing impacts of fixed vs. flexible regimes B. Macroeconomic shocks and exchange rate systems C. Strengths and weaknesses of exchange rate systems Final Exam (Chaps. 24-28): FRI 12/07/2012 1:30 - 4:15 PM JEFFRD 127 ** The instructor reserves the right to alter the course outline and course requirements at any time. Grading Policy: Grades are based on two mid-term exams (25% each), a final exam (25% and cumulative), and homework exercises (25%). Attendance Expectations: You are acquired to attend every class and will be held responsible for material presented in class. Exams will be based on readings/exercises and material presented in lectures. If you miss a class, it is your responsibility to acquire the material presented and assigned in that class. The Professor may assign in-class short essay quizzes without notice related to assigned readings and lecture material. The essay quizzes will count toward your exercises score. Additionally, you may be held responsible for material presented in class that is not found in the textbook, so attendance is essential for maximizing your grade and class performance. Email Policy: The instructor cannot guarantee a timely response to email inquiries/communication in terms of any course requirement deadlines (inside of 48 hours), although the instructor does try to respond to e-mail inquiries as quickly as possible via Smartphone. Electronic Devices: No electronic devices are permitted during class time unless pre-arranged with the professor. UVM Code of Academic Integrity: Violations of the UVM's Code of Academic Integrity are any acts which would have the effect of unfairly promoting or enhancing one's academic standing within the entire community of learners. Such acts are serious offenses and will not be tolerated. Any suspected violations of the Code will be forwarded to the Center for Student Ethics & Standards. Go to http://www.uvm.edu/~uvmppg/ppg/student/acadintegrity.pdf to read the Code of Academic Integrity. UVM Diversity Statement: The University of Vermont holds that diversity and academic excellence are inseparable. An excellent university, particularly one that is a public land grant, needs to actively seek to provide access to all students who can excel at the institution, without respect to their backgrounds and circumstances, including, among other differences, those of race, color, gender, gender identity or expression, sexual orientation, national and ethnic origin, socioeconomic status, cultural and/or geographic background, religious belief, age, and disability. There is, moreover, a compelling national interest in a higher education sector rich in diversity and opportunity, and a clear state interest in making the educational benefits of this diversity and opportunity accessible to all.