Economics 103 — Spring 2007International Monetary RelationsMay 2, 2007Instructor: Marc-Andreas MuendlerOffice: Economics 312Office hours: Wed 10:00am - 11:00am, Thu 11:30am - 12:30pmPhone: (858) 534-4799E-mail: [email protected]: Cognitive Science Building 001Class Time: TuTh 2:00pm - 3:20pmClass Web Page: econ.ucsd.edu/muendler/teach/07s/103Section ID 591663Teaching Assistants: Oana Tocoian Deniz KebabciE-mail: [email protected] [email protected]: Econ 127 Sequoyah Hall 205Office hours: Wed 11:00am-1:00pm Tue 12:30pm-1:30pm1 Course ObjectivesThis course examines the macroeconomy in an international setting. The cour-se covers the exchange rate and the current account, and relates their determi-nation to world capital markets and the domestic macroeconomy. The coursediscusses economic policies and their effects under different exchange rateregimes—ranging from floating rates to fixed rates to monetary unions—, andpresents implications for the current account and the economy as a whole. Afinal part of the course turns to recent issues including the present U.S. currentaccount imbalance and global financial crises.2 PrerequisitesEconomics 110A-B.3 ReadingsLecture notes become available online at econ.ucsd.edu/muendler/teach/07s/103before each class.Textbook: Krugman and Obstfeld (2003) or Krugman and Obstfeld (2006)1Readings: McKinnon (1993), Rogoff (1996);Obstfeld and Rogoff (1995);McKinnon (2001), Allsopp and Artis (2003), Stiglitz (2000)The readings (articles) help you review the lecture material beyond the text-book. They are available through the class web page (see link above). Web linksto copyrighted readings only work from on-campus domains.4 Problem SetsThere will be three problem sets, due on scheduled dates throughout the quar-ter. You are encouraged to work on the problems with your classmates. Thefirst problem set will have eight questions, the latter two will have six ques-tions each. Correct answers count for four points per question.Your teaching assistant Oana Tocoian will hold three sections, on April 23,May 14 and June 5 to help you approach the problems. Your solutions to theproblem sets will be graded and your performance on them will be part of thefinal grade. Problem sets have to be handed in before 2:00pm on the due date.You may bring them to class before it starts.5 AssessmentThere will be two midterm exams and a final exam. The two midterm ex-ams will take 70 minutes each and the final exam will take 120 minutes. Allexams are cumulative. Midterm exams take place in class and contain seventen-minute questions each. The final exam contains twelve 10-minute ques-tions. Problem sets have to be handed in before 2:00pm on the due date to beconsidered.Your final raw score will be your total points from the three exams and thethree problem sets:Problem sets: 80 points (32+24+24 points) 4/24, 5/15, 6/7Midterm 1 (70 minutes): 70 points 5/1Midterm 2 (70 minutes): 70 points 5/24Final (120 minutes): 120 points 6/13Total: 340 pointsYour final letter grade will be inferred from the typical grade distribution (curve)in economics classes at UCSD since 2000. You can find this grade distribution atecon.ucsd.edu/muendler/teach/07s/103. So, the difficulty or simplicity of problemsets and exams will not matter, whereas your relative performance in compar-ison to your classmates will determine your final letter grade (grades of F willnot depend on the curve but on a minimal performance standard).We will offer three review sessions, on April 30, May 23 and June 8, toprepare you for the exams.26 Class ScheduleI. Exchange Rate Determination1. Tue, April 3: Introduction to International Monetary Relations(Krugman and Obstfeld 2006/Ch. 12 and 18)2. Thu, April 5: International Monetary Systems, Past and Present(Krugman and Obstfeld 2006/Ch. 18; McKinnon 1993)PROBLEM SET 1 OUT3. Tue, April 10: Exchange Rates and Foreign Exchange Markets(Krugman and Obstfeld 2006/Ch. 13)4. Thu, April 12: An Asset Approach to the Exchange Rate(Krugman and Obstfeld 2006/Ch. 13)5. Tue, April 17: A Monetary Approach to the Exchange Rate(Krugman and Obstfeld 2006/Ch. 14)6. Thu, April 19: Monetary Policy and Exchange Rate Determination(Krugman and Obstfeld 2006/Ch. 14)Mon, April 23: REVIEW SESSION FOR PROBLEM SET 1 (Oana Tocoian)7. Tue, April 24: Purchasing Power Parity and the Monetary Approach(Krugman and Obstfeld 2006/Ch. 15; Rogoff 1996)PROBLEM SET 1 DUE8. Thu, April 26: Purchasing Power Parity and the Real Exchange Rate(Krugman and Obstfeld 2006/Ch. 15; Rogoff 1996)Mon, April 30: REVIEW SESSION FOR MIDTERM 1(Deniz Kebabci & Marc Muendler)Tue, May 1: MIDTERM 1covering lectures 1 through 8,Krugman and Obstfeld (2006)/Ch. 12 through 15 (Ch. 18 will only be onthe following exams); and McKinnon (1993), and Rogoff (1996)II. Exchange Rate and Current Account Determination9. Thu, May 3: Flexible Exchange Rates(Krugman and Obstfeld 2006/Ch. 16)PROBLEM SET 2 OUT10. Tue, May 8: Policy under Floating Exchange Rates(Krugman and Obstfeld 2006/Ch. 16)311. Thu, May 10: Flexible, Managed and Fixed Exchange Rates(Krugman and Obstfeld 2006/Ch. 16 and 17)Mon, May 14: REVIEW SESSION FOR PROBLEM SET 1 (Oana Tocoian)12. Tue, May 15: Policy under Fixed Exchange Rates(Krugman and Obstfeld 2006/Ch. 17; Obstfeld and Rogoff 1995)13. Thu, May 17: International Monetary Policy(Krugman and Obstfeld 2006/Ch. 18, 19 and 22; McKinnon 1993)PROBLEM SET 2 DUE14. Tue, May 22: International Capital Market Integration(Krugman and Obstfeld 2006/Ch. 21)Wed, May 23: REVIEW SESSION FOR MIDTERM 2(Deniz Kebabci & Marc Muendler)Thu, May 24: MIDTERM 2covering lectures 1 through 14,Krugman and Obstfeld (2006)/Ch. 12 through 19 and 22; Obstfeld andRogoff (1995) and McKinnon 1993III. Topics in International Macroeconomics15. Thu, May 29: Current Account Sustainability(McKinnon 2001)PROBLEM SET 3 OUT16. Thu, May 31: Optimum Currency Areas and the Euro(Krugman and Obstfeld 2006/Ch. 20; Allsopp and Artis 2003)17. Tue, June 5: International Financial Crises(Krugman and Obstfeld 2006/Ch. 21 and 22; Stiglitz 2000)Tue, June 5: REVIEW SESSION FOR PROBLEM SET 3 (Oana Tocoian)18. Thu, June 7: International Financial Crises(Krugman and Obstfeld 2006/Ch. 22; Stiglitz 2000)PROBLEM SET 3 DUEFri, June 8: REVIEW SESSION FOR FINAL EXAM(Deniz Kebabci & Marc Muendler)Wed, June 13 (Finals Week): 3:00p-5:00p FINAL EXAM (120 minutes)covering lectures 1 through 18,Krugman and Obstfeld (2006)/Ch. 12 through 22; and McKinnon (1993),Rogoff (1996),