ITF 220: The Economics of International Financial Policy Course Preview, Shopping Day Prof. Jeffrey Frankel January 21, 2016

ITF-220: Economics of International Financial Policy I.e., Open-economy macroeconomics Professor: Jeffrey Frankel – Office hours: Mon.& Tues., 3:00-4:00. Pre-requisites: – Introductory micro-economics – Intermediate macro-economics – Comfort with quantitative thinking, esp. algebra

3 Prerequisite for ITF 220: standard Intermediate Macroeconomics. For example: API 121 Macro Theory & Policy Spring Filipe Campante

4 Courses at more advanced levels than ITF-220: API-120 Fall JF Advanced Macro for Open Economy I API-119 Spring Filipe Campante + JF Advanced Macro for Open Economy II

5 Other useful / relevant courses Econometrics Finance – – API-141 Fall Akash Deep Finance – ITF 270 Spring Carmen ReinhartFinancial Crises International trade -- at a much less technical level, – ITF-110 Fall Robert Lawrence Political Economy of Trade – ITF-225 Spring Robert Lawrence Future of Globalization & Larry Summers

6 Substitutes for ITF 220 (this course) but at a more basic level: - ITF-100 F International Capital Markets [not offered, ] At perhaps a slightly more advanced level: In the Economics Department (FAS), - Ec 1544 Spring Gita Gopinath [not offered ] Foundations of International Macroeconomic Policy - Ec 1545 Fall Ken Rogoff International Financial and Macroeconomic Policy

Topics covered in ITF220 I) ELASTICITIES & THE TRADE BALANCE II) THE KEYNESIAN MODEL OF INCOME III) MONEY AND THE BALANCE OF PAYMENTS IV) GLOBALIZATION OF FINANCIAL MARKETS V) FISCAL & MONETARY POLICY UNDER INTERNATIONAL CAPITAL MOBILITY VI) INTERDEPENDENCE & COORDINATION VII) SUPPLY, INFLATION & MONETARY UNION VIII) EXPECTATIONS, MONEY & DETERMINATION OF THE EXCHANGE RATE Professor Jeffrey Frankel, Kennedy School, Harvard University

Some applied illustrations of international economic questions that we study in ITF220 8

Why was the US trade balance on a downward trend, ? ($ millions) ↑ Surplus ↓ Deficit Measures of external balance: United States with a improvements in , 2001, & especially ?

Bussière, Callegari, Ghironi, Sestieri, & N.Yamano, 2013, "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of " Why did global trade collapse in the global recession? (much more than usual) 2009

Has fiscal austerity helped, as a response to the euro crisis? Source: P.Krugman, 10 May 2012, via R.Portes, May 2013.

12 Why are MacDonald’s hamburgers expensive in Norway & Switzerland? but cheap in India & Ukraine?

Why has China been losing foreign exchange reserves since mid-2014? 13 June 2014 Dec. 2015

Why did Mexico used to suffer a currency crisis every 6 years? Mexican inflation, Changes in the $ value of the peso,

Hyperinflation: Why did Zimbabwe’s inflation rate reach 2,600% per month in mid-2008?

After Fed “taper talk” in May 2013, why did capital flows to Emerging Markets reverse? Powell, Jerome “Advanced Economy Monetary Policy and Emerging Market Economies.” Speech at the Federal Reserve Bank of San Francisco Asia Economic Policy Conference, November.