Balance of Payments and Foreign Exchange

Zahlungsbilanz und Devisenmarkt :
Lecturer: Univ Prof Dr Joseph Francois: http://www.i4ide.org/people/~francois/
email (secretayr): Anita.Pointner(a)jku.at

Readings and notes Lecture notes and readings are posted below with the course schedule

Course Overview
Lectures (KS): This an introductory course to the core field of "Balance of Payments and Foreign Exchange Markets." Students will be introduced to the monetary aspects of a country's international economic tansactions. They will get to know the meaning of important concepts like the balance of payments, the exchange rate, currency markets, international capital mobility, purchasing power parity, and interest rate parity. This will enable them to better understand and interpret recent developments in international financial markets, and understand the implications for government and business policy markets. Specifically we shall address the policy options available to governments in the present era of economic globalization, especially with respect to international currency systems (flexible vs. fixed exchange rates, currency unions).

Content: For lectures, we cover a systematic representation of all foreign transactions (international trade, international capital turnover) of an economy in the balance of payments. Relationship between these transactions and domestic investment and savings, as well as the domestic government budget deficit. Incentives for foreign exchange transactions, with special emphasis on international capital flows, interest rates and currency risk. Impact of exchange rate movements on domestic goods market and domestic employment. Balance of payments equilibrium under fixed exchange rates. Monetary and fiscal policy towards internal and external equilibrium at fixed and flexible exchange rates. Essential problems of alternative currency systems with special emphasis on the European Monetary Union.

TEXTBOOK:
Paul Krugman and Maurice Obstfeld, International Economics: Theory and Policy, 8th edition (2008), or the 9th edition (2011/2012 with Marc Melitz).

Grading
Grading for the lecture section (239110KS) will be based on
- midterm examination (45%)
- final examination (45%)
- participation and attendance (10%).
TOTAL: 100% -- minimum passing grade is 51%. YES, YOU MUST TAKE BOTH THE MIDTERM AND FINAL EXAM.

DATE	Time	Topics/Readings/Slides

Part 1 (blocks 1-4) Mo 07.Oct.2013 Mi 09.Oct.2013 Mo 14.Oct.2013 Mi 16.Oct.2013 Mo 21.Oct.2013	Mo HS9, Mi HS 18 13:45-15:15 15:30-17:00	0. Introduction 1. The asset approach to exchange rates Readings - Krugman and Obstfeld Chapters 13,14 (or 12,13 in the 8th edition) - "Activity in Global Foreign Exchange Markets," Samual Nightingale, Crystal Ossolinski and Andrew Zurawski Reserve Bank of Australia Bulletin 2010. http://www.rba.gov.au/publications/bulletin/2010/dec/6.html 2. Money, interest rates, and exchange rates Readings: - Krugman and Obstfeld Chapters 14,15 (or 13,14 in the 8th edition) - Chinn World Economy - Interest Rate Parity," 2007. 3. Prices and exchange rates in the long-run (real exchange rates, monetary approach to exchange rates) Readings: Krugman and Obstfeld Chapters 15,16 (or 14,15 in the 8th edition) 4. Output and exchange rates in the short-run Readings: Krugman and Obstfeld Chapters 16,17 (or 15,16 in the 8th edition) On-line appendix: the IS-LM model , Money Supply and the Exchange Rate 5. Fixed and flexible exchange rate regimes Readings: Krugman and Obstfeld Chapters 16,17,18 (or 15,16,19 in the 8th edition) SLIDES BLOCK0 BLOCK1 BLOCK2 BLOCK3 BLOCK4
Do 07.Nov.2013		MID-TERM EXAM check for time and location Location will be published on KUSSS REVIEW QUESTIONS The exam covers Blocks 1-4. It DOES NOT cover Block 5. BLOCK0 BLOCK1 BLOCK2 BLOCK3 BLOCK4
Part 2 (Blocks 4-7) Mi.23.Oct.2013 Mo.28.Oct.2013 Mi. 30.Oct.2013 Mo 11.Nov.2013 Mi 13.Nov.2013	Mo HS9, Mi HS 18 13:45-15:15 15:30-17:00	4. Output and exchange rates in the short-run 5. fixed and flexible exchange rate regimes 6. Policy coordination and currency crises 8. Optimum currency areas and the Euro crisis SLIDES: block 4 block 5 block 6 block 7 READINGS: Krugman and Obstfeld Chapter 16,17,18,19,20,21 (also 20,21in the 8th edition) other readings assigned below (with links) Additional Readings A1. Rethinking Central Banking (Brookings Institute, 2011) A2. Bagehot's Lessons for the Fed (MacKinnon 2008) A3. A Summit to the Death (Kevin O'Rourke, 2011) A4. Europe Split on Bank Union (Wall Street Journal, June 2012) A5. Guaging the multiplier, lessons from history, Kevin O’Rourke and Barry Eichengreen, October 2012, Voxeu.org. A6. WORLD ECONOMIC OUTLOOK. October 2012. Coping with High Debt and Sluggish Growth. International Monetary Fund. A7. Banking union: Ireland vs Nevada, an illustration of the importance of an integrated banking system, Daniel Gros, 27 November 2012, Voxeu.org.

FR 29.Nov.2013		FINAL EXAM Location will be published on KUSSS SLIDES: block 4 block 5 block 6 block 7 review questions (there is some overlap) Questions part 1 Questions part 2

Zahlungsbilanz und Devisenmarkt--Balance of payments and foreign exchange markets (KS)