THE UNIVERSITY OF ILLINOIS AT CHICAGO

ECON 515: INTERNATIONAL MONETARY THEORY AND POLICY

AUTUMN 2009

Prof. George Karras                                                                      Office Hours:

UH 2104 (996-2321)                                                          Tue, 1:00-2:00

e-mail: gkarras@uic.edu                                                                      and by appointment

Web Page: http://www.uic.edu/~gkarras

Required Texts:

N.C.Mark, International Macroeconomics and Finance, Blackwell, 2001.

Other Recommended Texts:

R.Dornbusch, Open Economy Macroeconomics, Basic Books, 1980. (Intermediate to advanced level, a classic but somewhat out of date).

C.P.Hallwood and R.MacDonald, International Money and Finance, 2nd edition, Blackwell,             1994. (Intermediate level, good coverage of topics in international finance).

B.T.McCallum, International Monetary Economics, Oxford, 1996. (Intermediate level, careful treatment of expectations.)

F.L. and L.A.Rivera-Batiz, International Finance and Open Economy Macroeconomics, 2^nd ed., Prentice Hall, 1994 (intermediate level, comprehensive coverage).

M.Obstfeld and K.Rogoff, Foundations of International Macroeconomics, MIT Press, 1996.             (Advanced level, comprehensive coverage, emphasis on intertemporal maximization).

P.J.Montial, International Macroeconomics, Wiley-Blackwell, 2009. (Intermediate level, well organized, comprehensive coverage)

P.DeGrauwe, The Economics of Monetary Integration, 5^th ed., Oxford, 2003. (Intermediate level, focus on monetary integration).

Overview:

            This is the second course of the graduate sequence in International Economics. The purpose of this course is to provide a broad survey of the topics in International Macroeconomic Theory and Policy. I will assume that you have mastered the models in Econ 511, 512, and 514, and that you are familiar with the basic concepts of calculus, probability, and statistics.

            Part I is a basic introduction to the main concepts and measurement issues. Part II extends the traditional Keynesian approach to the open economy, while Part III presents the monetarist alternative. Part IV introduces the synthesis known as the Mundell-Fleming model, and Part V treats some of the more modern aspects of the neoclassical approach and the links between openness and economic growth. The theory and practice of monetary integration is discussed in Part VI, and Part VII (if time permits) will deal with various other topics.

Evaluation:

            Your grade will be based on a midterm (50%) and a final (50%) examination. In addition, there will be at least two practice problem sets.

Tentative Course Outline:

I. INTRODUCTION

            1. The Balance of Payments

            2. The Foreign Exchange Market

            3. National Income Accounting in the Open Economy

II. THE TRADITIONAL (KEYNESIAN) APPROACH

            4. Small Open Economy

            5. Large Open Economy

            6. IS-LM with no Capital Mobility

III. THE MONETARY APPROACH

            7. Sterilization and Implications

            8. Purchasing Power Parity

            9. Balance of Payments and Exchange Rate Determination

            10. Interest Rate Parities

IV. THE MUNDELL-FLEMING MODEL AND EXTENSIONS

            11. The Importance of Capital Mobility

            12. Fixed and Floating Exchange Rates

            13. International Interdependence and Co-ordination

            14. Aggregate Demand - Aggregate Supply

V. NEOCLASSICAL MODELING

            15. Intertemporal Trade and the Current Account

            16. The Importance of Investment

            17. A Two-Country Model

            18. Globalization and Economic Growth

VI. MONETARY INTEGRATION

            19. Fixed vs Floating Exchange Rates

            20. Optimum Currency Areas

            21. Monetary Unions in Practice

VII. OTHER TOPICS

            19. Historical Review: Gold Standard, Bretton Woods, Floating, etc.

            20. Exchange-Rate Crises (EMS, Mexico, South-East Asia, Argentina, etc.)