TEXTBOOK
There is no textbook for this class. However, as a general reference, we will be using:
Obstfeld M and K Rogoff (OR) Foundations of International Economics, MIT press, 1996
Cochrane J (CO) Asset Pricing, revised edition, Princeton, 2005
Campbell J A Lo and AC MacKinlay (CLM) The Econometrics of Financial Markets, Princeton, 1997
Market microstructure
Lyons Richard, The microstructure approach to exchange rates, MIT press 2001
For an accessible reference to Finance, see also
Pilbeam Keith, Finance and Financial Markets, 3rd edition, Palgrave, 2010
General reading
Obstfeld M and A Taylor (OT), Global Capital Markets, Integration, Crisis and Growth, Cambridge, 2004
Reinhart C and K Rogoff (RR), This time is different, Princeton 2009
LECTURES AND READINGS
Lectures by Petra Geraats
posted here:
Goldberg Linda, Craig Kennedy and Jason Miu Central Bank Dollar Swap Lines and Overseas Dollar Funding Costs Federal Reserve Bank of New York Economic Policy Review, forthcoming
Lecture 2 study guide and practice questions
Uncovered interest parity
A nice short piece explaining the main challenges to rethinking international finance is by Obstfeld Maurice, Expanding Gross Asset Positions and the International Monetary System" ( (Panel presentation at Jackson Hole Symposium, August 2010). See also OT chapter 1
I. Finance basics
Lecture 1 Asset pricing, gains from trade in financial assets, comparative advantages, complete vs. incomplete markets (Lecture 1 printed differently)
** Lars Svensson, Trade in Risky Assets, AER 1987.
** OR Chapter 1.1 (1.2 and 1.3.4.), 5.1, 5.2.3.
* CO chapter 1, pp. 1-20 *
NEW Lecture 1 study guide and practice questions
NEW Balance of Payment definitions
II. International asset markets. Integration and risk.
Covered interest parity
Lecture 2 Arbitrage-based tests of asset market integration. Covered interest parity CIP. Risks and deviations from CIP. (Lecture 2 printed differently)
Data on financial Integration
* Philip Lane and Gian Maria Milesi-Ferretti (2007), "The External Wealth of Nations Mark II," Journal of International Economics.
For definitions and methods: see the Balance of Payments Manual by the International Monetary Fund or European Central Bank, European Union balance of payments/international investment position statistical methods
Measuring financial integration
* Menzie Chinn and Iro Hito "A New Measure of Financial Openness," Journal of Comparative Policy Analysis 10(3) (September 2008): 307-320 [PDF]. Data: Chinn-Ito (2006) Financial Openness measure (data extending to 2008, updated July 2010) [Excel file] (7/10) Notes to Chinn-Ito Financial Openness measure [PDF] (7/28/10). Chinn-Ito index used in World Bank, World Development Report 2009.
Arbitrage-based tests of financial integration
Marston, Richard. 2000. International Financial Integration, Cambridge University Press.
Arbitrage and risk: a case study from the recent crisis
* Naohiko Baba, Frank Packer and Teppei Nagano, 2008 The spillover of money market turbulence to FX swap and cross-currency swap markets, BIS Quarterly Review http://www.bis.org/publ/qtrpdf/r_qt0803h.pdf
This is general outline identifying the main themes of the course.
Lectures by Giancarlo Corsetti
Introduction
Frankel, Jeffrey and Jumana Poonawala, 2006, “The Forward Market in Emerging Currencies: Less Biased Than in Major Currencies,” NBER Working Paper No. 12496 (August).
Lecture 3 study guide and practice questions
and emerging economies,’ Journal of International Economics, Volume 51: 115-144.
Chinn, Menzie, "Survey Based Expectations and Uncovered Interest Parity," mimeo (October 7, 2009). [pdf].
Chinn Menzie "The (Partial) Rehabilitation of Interest Rate Parity in the Floating Rate Era: Longer Horizons, Alternative Expectations, and Emerging Markets," JIMF26 (2006): 7-21. [PDF]
Bansal, R. and M. Dahlquist, 2000, ‘The forward premium puzzle: different tales from developed
III. The return to currency speculation
Lecture 4 Evidence on returns. Risk versus peso problems (Lecture 4 printed differently)
What explains the returns to currency speculation?
Read the following two articles to get the general idea
** Craig Burnside Martin Eichenbaum, Isaac Kleshchelski and Sergio Rebelo.Do Peso Problems Explain the Returns to the Carry Trade? Feb 2011, Review of Financial Studies.
** Hanno Lustig and Adrien Verdelhan. (2007). The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk. American Economic Review,
[ Link ]
Lecture 4 study guide and practice questions
IV. PPP
Lecture 5 Definitions. Decomposition of RER movements. Speed of Adjustment. A simple model of price discrimination ( Lecture 5 printed differently)
Engel, Charles [1999]. "Accounting for US Real Exchange Rate Changes,'' Journal of Political Economy 107, 507-38.
** Ariel Burstein, Martin Eichenbaum and Sergio Rebelo 2005 The Importance of Nontradable Goods' Prices in Cyclical Real Exchange Rate Fluctuations
** Rogoff K. The Purchasing Power Parity Puzzle, Journal of Economic Literature 1996
* Corsetti G. and L. Dedola Macroeconomics of International Price Discrimination. JIE
Lecture 5 study guide
V. Exchange rate determination and the international transmission mechanism (with full risk sharing)
Lecture 6-10
READ CAREFULLY ** Corsetti, Giancarlo & Pesenti, Paolo, 2007 The simple geometry of transmission and stabilization in closed and open economy, NBER International Seminar on Macroeconomics
** Corsetti, Giancarlo & Pesenti, Paolo, 2005. "International dimensions of optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 281-305, March.
** New Open Economy Macroeconomics (January 2007). Entry for the New Palgrave Dictionary of Economics, 2nd edition