International Monetary Economics
Exam number: 6022
Semester: from 4th semester (Schwerpunktbildung)
Duration of the module: One semester
Form of the module (i.e. obligatory, elective etc.): Elective
Frequency of module offer: Each summer semester
Prerequisites: The students should be able to analyze macroeconomic shocks in the IS-LM-model and the AS-AD-model in a verbal, graphical, and formal way. The students should be able to apply mathematical concepts such as the differential and Cramer's rule. Furthermore, the students should have some background in statistics and should be able to construct and interpret confidence intervals, hypotheses tests and univariate regressions. All courses from the „orientation phase“ should be completed.
Applicability of module for other study programmes:
Obligatory or elective in other study programmes. For further information check regulations of the study programme.
Person responsible for module: Prof. Dr. Georg Stadtmann
Name of the professor: Prof. Dr. Georg Stadtmann
Language of teaching: English
ECTS-Credits (based on the workload): 6
Workload and its composition (self-study, contact time):
Contact time (lecture, tutorials, seminar etc.) 33,75 h; self-study: 146,25 h
Contact hours (per week in semester): 3
Methods and duration of examination:
- A complete submission of 3 group assignments on schedule (weight: 45% in sum).
- A successful completion of the final exam (90 minutes, weight: 55%).
The final grade results from the weighted average of the single graded parts.
A student receives a grade of 1.0 by exhibiting
- A comprehensive overview and a very sound knowledge of the various models, theories and methods covered in class.
- A convincing general understanding of the basic assumptions of the models and theories covered in class.
- An extensive ability to explain the adjustment mechanisms of the different models, by using graphical analysis as well as mathematical calculations that describe these mechanisms.
- An extensive knowledge about individual models and theories and their applications - as reflected in a comprehensive rationale for the choice of model under given specific situations and problems.
- A sound understanding of main principles of the monetary policy conducted by the ECB and its impact on the European economy.
A student receives a grade of 4.0 – minimum acceptable grade of successful completion of the course – by exhibiting
- a basic overview and a very sound knowledge of the various models, theories and methods covered in class.
- a basic general understanding of the basic assumptions the models and theories covered in class.
- a basic ability to explain the adjustment mechanisms of the different models, by using graphical analysis as well as mathematical calculations that describe these mechanisms.
- a basic knowledge about individual models and theories and their applications - as reflected in a comprehensive rationale for the choice of model under given specific situations and problems.
- a basic understanding of main principles of the monetary policy conducted by the ECB and its impact on the European economy.
Emphasis of the grade for the final grade: Please check regulations of the study programme
Aim of the module (expected learning outcomes and competencies to be acquired):
The purpose of the course is to introduce the students to some of the most widely used models in international macroeconomics. The course provides basic tools for performing comparative static and dynamic analysis of the open economy. This tool-box contains verbal, graphical and mathematical tools. In addition, the students get hands-on experience analyzing economic data by using Excel and econometric software. The course introduces basic macroeconomic models of the open economy.
In relation to the study program's qualification profile, the subject explicitly focuses on:
- Gain knowledge about the main equilibrium conditions in international macroeconomics, such as the different concepts of PPP, UIP, CIP and their empirical validity.
- Students acquire knowledge about the underlying assumptions and equilibrium conditions of common macroeconomic models of the open economy (Mundell-Fleming model, monetary model).
- Students possess the skills to analyze, compare and evaluate the consequences of various macroeconomic shocks on a small open economy. They gain also the skills to quantify these effects. To be more specific, students acquire the skills to apply, for example, Cramer's rule and Sarrus' rule to solve a linear system of equations.
- Students have the skills to perform comparative static as well as dynamic analyses. Students are expected to derive impulse response functions by numerical simulation methods. Various sensitivity analyses highlight the importance of the different assumptions as well as the impact of different parameter constellations.
- The various macroeconomic models build the basic modeling tools of the different crisis models. For example, the monetary model builds the basic block of first generation crises models discussed in the second half of the course. In the same respect, the Mundell-Fleming model will be augmented by the Bernanke-Gertler effect of the open economy to end up at the third generation crisis model introduced by Krugman. Hence, students gain the knowledge how the main building blocks can be utilized to derive insights into connected fields of study.
- Enhancing skills in application of statistical procedures to test hypotheses generated by the theoretical models. In this process, students gain the skills to collect, process, analyze and interpret data in Excel or Stata/R. The students master the scientific methodologies of a univariate regression analysis, which includes hypothesis testing and confidence intervals. These regressions might be of time series or cross-section regressions type. Panel econometric techniques are not applied.
- Students assess theoretical/practical problems and set up and justify possible solutions. For example, data sets of a one-month ahead forward rate are given on a daily basis. If these data are analyzed in the raw data format, the student will run into serious autocorrelation problems. As a consequence, the student is asked to melt down the data set to a monthly frequency.
- Students acquire the competence to manage work and master situations that are complex, unpredictable and require new solutions. This competence is practiced in 3 group assignments which should be solved in a group of 3-4 students. Group assignments train the competence to initiate and implement research activities within a professional cooperation and take on professional responsibility. The results of the weekly assignments are presented by one group of students to train the skills to present and communicate research based knowledge in a professional manner. Subsequent class discussions train the communication competencies of the group as well as their classmates.
- In order to strengthen the competencies to independently take responsibility for own professional development and specialization a written exam is also a part of the overall grade. This will also strengthen the skills to structure economic thinking and to communicate with professionals and non-specialists in a written form.
Contents of the module:
Chapter 13: National Income Accounting and the Balance of Payments
Chapter 14: Exchange Rates and the Foreign Exchange Market: An Asset Approach
Chapter 15: Money, Interest Rates, and Exchange Rates
Chapter 16: Price Levels and the Exchange Rate in the Long Run
Chapter 17: Output and the Exchange Rate in the Short run
Chapter 18: Fixed Exchange Rates and Foreign Exchange Interventions
- Discussion of problems relating to models of international macroeconomics which are content of the lecture.
- A discussion of the group assignments.
- Review of some basics of statistics and linear regression (if time permits).
Teaching and learning methods:
Lecture with tutorials, self-studies
Literature (compulsory reading, recommended literature):
Obstfeld/Krugman/Melitz: International Economics, Latest Edition.
Registration in Moodle Viadrina required.