14.582 – International Economics II

Fall 2007

Ricardo Caballero (caball@mit.edu)
Roberto Rigobón (glorenzo@mit.edu)
T.A. José Tessada (tessada@mit.edu)

Texts

Maurice Obstfeld and Kenneth Rogoff, Foundations of International Macroeconomics, MIT Press, 1996 is an excellent background for many of the topics in this reading list.

Outline of the course

The following outline gives a guide to the material that will be covered in the course. Updates to this outline may be given during class. Lectures are indicative: we may well find that some topics require more (or less) time to cover. The emphasis of the course is on financial markets and their imperfections. We will start with the foundations and gradually build in context.

Course requirements

Periodic short assignments: these may be problems but will also consist of answering short questions assigned during class, related to course readings. You are encouraged to work with your classmates, and you may give answers in groups. One mid-term quiz (in October) and one final quiz (on the last day of classes) carrying equal weights.

Part I: The Core

1. Intertemporal Approach to the Current Account (2 lectures)

* Obstfeld and Rogoff , Chapter 2

* Kraay, A. and J. Ventura, 2000. “Current Accounts in Debtor and Creditor Countries”, Quarterly Journal of Economics 115 (4), pp. 1137-1166, November. (paper)

Corsetti, G., L. Dedola, and S. Leduc, 2006. “Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism Among G7 Countries”, forthcoming in L. Reichlin and K. West (eds.) NBER International Seminar on Macroeconomics 2006. (paper)

Dornbusch, R., 1983. “Real Interest Rates, Home Goods and Optimal External Borrowing”, Journal of Political Economy 91 (1), pp. 141- 153, February. (paper)

Glick, R. and K. Rogoff, 1995. “Global versus country-specific productivity shocks and the currenct account”, Journal of Monetary Economics 35(1), 159-92. (paper)

Mercereau, B., 2003. “The Role of Stock Markets in Current Account Dynamics: a Time Series Approach”, BE Press, Topics in Macroeconomics 3 (1) (also IMF Working Paper 04/50). (paper)

Obstfeld, M. and K. Rogoff, 1995. “The Intertemporal Approach to the Current Account”, in Handbook of International Economics, Gene Grossman and Ken Rogoff, eds., North Holland. (online)

Razin, A.and L. Svensson, 1983. “The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect,” Journal of Political Economy, 91 (1), pp. 97—125, February. (paper)

2. Complete Markets and International RBC (2 lectures)

* Obstfeld and Rogoff , Chapter 5

* Backus, D., P. Kehoe, and F. Kydland, 1992. “International Real Business Cycles”, Journal of Political Economy 100 (4), pp. 745-775, August. (paper)

* Obstfeld, M. and K. Rogoff, 2001. “The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?” NBER Macroeconomic Annual 2000. (paper)

Backus, D., P. Kehoe, and F. Kydland, 1994. “Relative Price Movements," in Handbook of International Economics, Gene Grossman and Ken Rogoff, eds., North Holland. (online)

Backus, D. and G. Smith, 1993. “Consumption and Real Exchange Rates”, Journal of International Economics 35 (3-4), pp. 297-316, November. (paper)

Backus,D., P. Kehoe, and F. Kydland, 1994. “Dynamics of the Trade Balance and the Terms of Trade: The J curve”, American Economic Review 84 (1), pp. 84-103, March. (paper)

3.Debt, International Portfolios, and Asset Prices (4 lectures)

* Obstfeld and Rogoff, Chapter 5.

* Bulow, K. and K. Rogoff, 1989. “Sovereign Debt: Is to Forgive to Forget?”, American Economic Review 79, pp. 43-50, March. (paper)

* Cole, H. and M. Obstfeld, 1991. “Commodity Trade and International Risk Sharing: How much do Financial Markets Matter?” Journal of Monetary Economics 28, pp. 3-24, August. (paper)

* Obstfeld, M. and K. Rogoff, 2001. “The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?” NBER Macroeconomic Annual. (paper)

* Pavlova Anna and Roberto Rigobon 2007 “Asset Prices and Exchange Rates,” Review of Financial Studies, forthcoming. (paper)

* Obstfeld, M., and K. Rogoff (2000): “New Directions for Stochastic Open Economy Models,” Journal of International Economics, 50, 117-153. (paper)

A. Atkeson, 1991. “International Lending with Moral Hazard and Risk of Repudiation”, Econometrica 59 (4), pp. 1069-1089, July. (paper)

Athanosoulis, S and E. van Wincoop, 2000. “Growth Uncertainty and Risk-Sharing,” Journal of Monetary Economics 45, pp. 477-505. (paper)

Baxter, M. and U. Jermann, 1997. “The International Diversification Puzzle Is Worse Than You Think”, American Economic Review 87 (1), pp. 170-180. (paper)

Bottazi, L., P. Pesenti, and E. van Wincoop, 1996. “Wages, Profits and the International Portfolio Puzzle,” European Economic Review 40 (2), pp. 219-254. (paper)

Bulow, K. and K. Rogoff, 1989. “A Constant Recontracting Model of Sovereign Debt”, Journal of Political Economy 97, pp. 155-78. (paper)

Arellano, C., 2007 "Default Risk and Income Fluctuations in Emerging Economies," forthcoming, American Economic Review. (paper)

Coeurdacier, N., 2005. “Do trade costs in goods markets lead to home bias in equities?” Paris-Jourdan Sciences Economiques mimeo. (paper)

Corsetti, G., L. Dedola, and S. Leduc, 2004. “International Risk-Sharing and The Transmission of Productivity Shocks”, European Central Bank WP No. 308, also International Finance Discussion Papers 826, Board of Governors of the Federal Reserve System, 2005. (paper)

Eaton, J. and R. Fernandez, 1995. “Soveriegn debt”, Handbook of International Economics 3, chapter 39, pp. 2032-2077. (online)

Heathcote, J. and F. Perri, 2004. “The International Diversification Puzzle is not as bad as you think”, mimeo, University of Minnesota. (paper)

Kehoe, P. and F. Perri, 2002. “International Business Cycles with Endogenous Incomplete Markets”, Econometrica 70, pp. 907-928, May. (paper)

Kletzer K. and B. Wright, 2000. “Sovereign Debt as Intertemporal Barter”, American Economic Review 90, pp. 621-639, June. (paper)

Kraay, A., N. Loayza, L. Servén, and J. Ventura, 2005. “Country Portfolios,” Journal of the European Economic Association 3(4), pp. 914-945. Longer working paper versions: NBER WP No. 7795 and CEPR DP No. 2974, 2000. (paper)

Martin, P. and H. Rey, 2000. “Financial Integration and Asset Returns”, European Economic Review 44, pp. 1327-1350. (paper)

Martin, P. and H. Rey, 2001. “Financial Supermarkets: Size Matters for Asset Trade”, Journal of International Economics 64(2), pp. 335-361. (paper)

Obstfeld, M. and A. Taylor, 2003. “Sovereign Risk, Credibility and the Gold Standard: 1870-1913 versus 1925-31”, Economic Journal 113 (Apr), 241-275. (paper)

Obstfeld, M., 1994. “Risk Taking, Global Diversification and Growth”, American Economic Review 84 (5), pp.1310-1329. (paper)

De Marzo, P., Ron Kaniel, and Ilan Kremer, 2004. “Diversification as a Public Good: Community Effects in Portfolio Choice”, Journal of Finance 59, pp. 1677-1715. (paper)

Pavlova, Anna and Roberto Rigobon 2007. “The Role of Portfolio Constraints in the International Propagation of Shocks” MIT mimeo. (paper)

Pavlova, Anna and Roberto Rigobon, 2007. “An Asset Pricing View of the External Adjustment”. MIT mimeo.

Pesenti, P. and E. van Wincoop, 2002. “Can Nontradables Generate Substantial Home Bias?” Journal of Money, Credit and Banking 34 (1), pp. 25-50. (paper)

Veldkamp, L. and S. Van Nieuwerberg, 2007. “Information Immobility and the Home Bias Puzzle”, NYU Stern mimeo. (paper)

4. Money and Exchange Rates (1 lecture)

* Dornbusch, R,1976. “Expectations and Exchange Rate Dynamics”, Journal of Political Economy 84 (6), pp. 1161-1176, December. (paper)

Chari, V.V., P. Kehoe, and E. McGrattan, 2002. “Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?” Review of Economic Studies 69 (3), pp. 553-63. (paper)

Benigno, G., 2004. “Real Exchange Rate Persistence with Endogenous Monetary Policy”, Journal of Monetary Economics 51, pp. 473-502. (paper)

4.1 Prices, Market Structure, and Pass-Through (2 lectures)

* Atkeson, A. and A. Burstein, 2007. “Trade Costs, Pricing to Market, and International Relative Prices”, UCLA mimeo. (paper)

* Dornbusch, R., 1987. “Exchange Rates and Prices”, American Economic Review 77 (1), pp. 93 – 106, March. (paper)

* Gopinath, G. and R. Rigobon “Sticky Borders” Quarterly Journal of Economics, forthcoming. (paper)

* Gopinath, G. O. Itskhoki, and R. Rigobon “Pass-Through at the Dock” MIT mimeo. (paper)

* Krugman, P., 1986. “Pricing to Market When the Exchange Rate Changes”, NBER WP No. 1926. Also in S. Arndt and J.D. Richardson (eds.) Real-Financial Linkages among Open Economies. Cambridge, Mass. MIT Press (1993). (paper)

Burstein, A., J. C. Neves, and S. Rebelo, 2003. “Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate Based Stabilizations”, Journal of Monetary Economics 50, pp. 1189-1214. (paper)

Burstein, A., M. Eichenbaum and S. Rebelo, 2005. “Large Devaluations and the Real Exchange Rate”, Journal of Political Economy, August. (paper)

Burstein, A., M. Eichenbaum, and S. Rebelo, 2002. “Why Are Inflation Rates So Low After A Devaluation?”, NBER WP No. 8748. (paper)

Campa, J. and L. Goldberg, 2004. “Do Distribution Margins Solve The Exchange Rate Disconnect Puzzle?” New York Fed mimeo. (paper)

Campa, J., and L. Goldberg, 2005. “Exchange Rate Pass-Through into Import Prices,” Review of Economics and Statistics, 87(4), 679-690. (paper)

Corsetti, G. and L. Dedola, 2005. “A Macroeconomic Model of International Price Discrimation”, Journal of International Economics 67(1), pp. 129-155. (paper)

Goldberg, L., and C. Tille, 2006. “Vehicle Currency Use in International Trade," Federal Reserve Bank of New York report. (paper)

Goldberg, P., and R. Hellerstein, 2007. “A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application,” Yale University and Federal Reserve Bank of New York. (paper)

Marazzi, M., N. Sheets, R. Vigfusson, J. Faust, J. Gagnon, J. Marquez, R. Martin, T. Reeve, and J. Rogers, 2005. “Exchange Rate Pass-Through to U.S. Import Prices: Some New Evidence," Board of Governors of the Federal Reserve System, International Finance Discussion Paper # 833. (paper)

4.2 The PPP puzzle (2 lectures)

* Imbs, J., H. Mumtaz, M. Ravn, and H. Rey. “PPP Strikes Back: Aggregation and the Real Exchange Rate”, Quarterly Journal of Economics 120(1), pp. 1-43. (paper)

* Rogoff, K. (1996): “The Purchasing Power Parity Puzzle," Journal of Economic Literature, 34, 647-668. (paper)

Chen, S. and C. Engel, 2004. “Does Aggregation Bias Explain the PPP Puzzle”, NBER WP No.10304. (paper)

Crucini, M. J. and M. Shintani, 2006. “Persistence of Law-of-One Price Deviations: Evidence from micro data”, Vanderbilt University mimeo. (paper)

Parsley, D. and W. Shang-Jin, 2004. “A Prism Into the PPP Puzzle: The Micro Foundations of Big Mac Real Exchange Rates”, forthcoming Economic Journal. (paper)

Reidel, D. and J. Szilagyi, 2004. “A Biased View of PPP”, Harvard University mimeo.

Part II: Financial Integration and Macroeconomic Policy in the Global Economy

5. Introduction (1 lecture)

* Caballero, R.J., “On the Macroeconomics of Asset Shortages,’’ MIT mimeo, November 2006. (paper)

Caballero, R.J. “The Future of the IMF”, American Economic Review, Papers and Proceedings, 93(2), pp. 31-38, May 2003. (paper)

6. Global Imbalances (2 lectures)

6.1 The Facts

Backus, D., E. Henriksen, F. Lambert, and C. Telmer 2006. “Current Account Fact and Fiction”, Mimeo. (paper, slides)

Lane, P. and G. Milesi-Ferretti, 2005. “A Global Perspective on External Positions”, IMF WP No. 05/161. (paper)

6.2 The Conventional (“Disequilibrium”) View

* Obstfeld, M. and K. Rogoff, 2005. “The Unsustainable US Current Account Positioned Revisited”, Brookings Papers on Economic Activity, 2005 issue 1, 67-123. (paper)

Bergsten, C. and J. Williamson, 2004. Dollar Adjustment: How Far? Against What? Special Report 17. Washington, D.C.: Institute for International Economics. (online)

Bergsten, C. and J. Williamson, 2003. Dollar Overvaluation and the World Economy. Special Report 16. Washington, D.C.: Institute for International Economics. (online)

Roubini, N. and B. Setser, 2005. “How Scary Is the Deficit? American Power and American Borrowing: Our Money, Our Debt, Our Problem”, Foreign Affairs 84(4), pp. 194-98. (online)

Roubini, N. and B. Setser, 2005. “The Sustainability of US External Imbalances”, CESifo Forum 6(1), pp. 8-15. (online)

Blanchard, O., F. Giavazzi, and F. Sa, 2005. “The U.S. Current Account and the Dollar”, Brookings Papers on Economic Activity, 2005 issue 1, 1-49. (paper)

Edwards, S., 2005. “Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely to Be?” Brookings Papers on Economic Activity , 2005 issue 1, 211-271. (paper)

6.3 New (“Equilibrium”) Views

* Caballero, R., E. Farhi, and P.O. Gourinchas, 2007. “An Equilibrium Model of “Global Imbalances” and Low Interest Rates’’, American Economic Review, forthcoming. (paper)

* Gourinchas, P. O. and H. Rey, 2007. “From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege”, in G7 Current Account Imbalances, ed by R.H. Clarida. (paper)

Cooper, R., 2005. “Is the Current Account Deficit Sustainable?”, CESifo Forum 6(1), pp. 3-7. (online)

Cooper, R., 2005. “Global Current Account Imbalances and Exchange Rate Adjustments: Comment”, Brookings Papers on Economic Activity 2005 issue 1, pp. 124-28. (paper)

Caballero, R., E. Farhi, and M. Hammour, 2006. “Speculative Growth: Hints from the U.S. Economy,” American Economic Review, September. (paper)

Bernanke, B., 2005. “The Global Saving Glut and the U.S. Current Account,” Remarks at the Sandridge Lecture, Virginia Association of Economics, Richmond, VA, March 10. (online)

Hausmann, R. and F. Sturzenegger, 2006. “Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations”, CID Working Paper No. 124. (paper)

Engel, C. and J.H. Rogers, 2006. “The U.S. Current Account Deficit and the Expected Share of World Output,” Journal of Monetary Economics 5, 1063-1093. (paper)

Mendoza, E. V. Quadrini, and V. Rios-Rull, 2006. “Financial Integration, Financial Deepness and Global Imbalances,” Maryland mimeo, October. (paper)

Fogli, A. and F. Perri, 2006, “The Great Moderation and the US External Imbalance,” Fed Minneapolis, August. (paper)

Dooley, M., D. Folkerts Landau, and P. Garber, 2004. “The Revived Bretton Woods System”, NBER WP No. 10332. (paper)

Dooley, M., D. Folkerts Landau, and P. Garber, 2004. “The US Current Account Deficit and Economic Development: Collateral for a Total Return Swap”, NBER WP No. 10727. (paper)

Dooley, M., D. Folkerts Landau, and P. Garber, 2007. “The Two Crises of International Economics” NBER WP No.13197. (paper)

Kraay, A. and J. Ventura, 2007. “The Dot-Com Bubble, The Bush Deficits, and the U.S Current Account”, in G7 Current Account Imbalances, ed by R.H. Clarida. (paper)

Ventura, J., 2002. “Bubbles and Capital Flows”, mimeo CREI and UPF. (paper)

7. Integration (2 lectures)

* Antras, P. and R.J. Caballero, “Trade and Capital Flows: A Financial Frictions Perspective,’’ MIT mimeo June 2007. (paper)

* Aoki, K., G. Benigno and N. Kiyotaki, “Adjusting to Capital Account Liberalizations,” Mimeo, Princeton, April 2006. (paper)

“The IMF and Recent Capital Account Crises: Indonesia, Korea, Brazil”, IMF and IMF Independent Evaluation Office, 2003.

Arteta, C., B. Eichengreen, and C. Wyplosz, 2001. “When does capital account liberalization help more than it hurts?”, NBER WP No. 8414. (paper)

Schmukler, S., 2003. “Financial Globalization: Gain and Pain for Developing Countries”, Economic Review, Federal Reserve Bank of Atlanta, Second Quarter, pp. 39-66. (paper)

Edison, H., M. Klein, L. Ricci, and T. Sloek, 2002. “Capital Account Liberalization and Economic Performance: Survey and Synthesis”, NBER WP No. 9100. (paper)

Caballero, R.J. and M. Hammour, “On the Ills of Adjustment,” Journal of Development Economics 51, 1996, 161-192. (paper)

Gourinchas, P.O. and O. Jeanne, 2006. “The Elusive Gains from International Financial Integration,” Review of Economic Studies 73(3), July. (paper)

Gourinchas, P.O. and O. Jeanne, 2007. “Capital Flows to Developing Countries: The Allocation Puzzle,” Mimemo UCB. (paper)

Matsuyama, K. 2004. “Financial Market Globalization and the Endogenous Inequality of Nations,” Econometrica, May. (paper)

8. Sudden Stops (4 lectures)

8.1 The Facts

Caballero, R., 2000. “Macroeconomic Volatility in Latin America: A View and Three Case Studies”, Economia 1(1), pp. 31-108, Fall. Reprinted in Estudios de Economia 28 (1), pp. 5-52, June 2001. (paper)

Calvo, G., A. Izquierdo, and L. F. Mejia, 2004. “On the Empirics of Sudden Stops: The Relevance of Balance Sheet Effects”, NBER WP No. 10520. (paper)

Kaminsky, G., C. Reinhart, and C. Vegh, 2004. “When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies”, NBER Macroeconomics Annual 2004, vol. 19, pp. 11-53. (paper, NBER working paper)

8.2 Domestic Problems and Policy

8.2.1 The Private Sector

* Caballero, R. and A. Krishnamurthy, 2004. “Smoothing Sudden Stops”, Journal of Economic Theory 119 (1), pp. 104 – 127. (paper)

* Caballero, R. and A. Krishnamurthy, 2005. “Exchange Rate Volatility and the Credit Channel in Emerging Markets: A Vertical Perspective”, International Journal of Central Banking (1) 1, May, 207-245. (paper)

* Caballero, R. and A. Krishnamurthy, 2006. “Bubbles and Capital Flow Volatility: Causes and Risk Management”, Journal of Monetary Economics 53(1), 33-53. (paper)

Caballero, R. and A. Krishnamurthy, 2001. “International and Domestic Collateral Constraints in a Model of Emerging Market Crises”, Journal of Monetary Economics 8 (3), pp. 513-548. (paper)

Caballero, R. and A. Krishnamurthy, 2002. “A Dual Liquidity Model of Emerging Markets”, American Economic Review, Papers and Proceedings, 92(2), pp. 33-37. (paper)

Caballero, R. and A. Krishnamurthy, 2003. “Excessive Dollar Debt: Financial Development and Underinsurance”, Journal of Finance 58(2), pp. 867-893, April. (paper)

Holmstrom, B. and J. Tirole 2002, “Domestic and International Supply of Liquidity,” American Economic Review, Papers and Proceedings May, pp42-45. (paper)

Lorenzoni, G., 2007. “Inefficient Credit Booms”, MIT Mimeo. (paper)

Tirole, J, 1985. “Asset Bubbles and Overlapping Generations”, Econometrica 53 (6), pp. 1499-1528, November. (paper)

Hellwig, C. and G. Lorenzoni, 2006. “Bubbles and Self-Enforcing Debt”, MIT mimeo. (paper)

Rappaport, V., 2006. “Persistence of Dollarization after Price Stabilization”, mimeo Columbia Business School. (paper)

Reinhart, C., K. Rogoff, and M. Savastano, 2003. “Debt Intolerance”, Brookings Papers on Economic Activity v 2003(1), 1-74, (also NBER WP No. 9908.) (paper)

Reinhart, C., K. Rogoff, and M. Savastano, 2003. “Addicted to Dollars”, NBER WP No. 10015. (paper)

Uribe, M., 2006, “Individual versus Aggregate Collateral Constraints and the Overborrowing Syndrome,” NBER WP No. 12260. (paper)

8.2.2 The Government

* Tirole, J., 2003. “Inefficient Foreign Borrowing: A Dual- and Common-Agency Perspective”, American Economic Review 93 (5), pp. 1678 – 1702, December. (paper)

Hemming, R., M. Kell, and A. Schimmelpfenning, 2005. “Fiscal Vulnerability and Financial Crises in Emerging Market Economies”, IMF Occasional Paper 218.

Berg, A., E. Borensztein, G. Milesi-Ferretti, and C. Pattillo, 2000. “Anticipating Balance of Payment Crises: The Role of Early Warning Systems”, IMF Occasional Paper 186.

Rosenberg, C., I. Halikias, B. House, C. Keller, 2005. “Debt-Related Vulnerabilities and Financial Crises”, IMF Occasional Paper 240.

Caballero, R. and A. Krishnamurthy, 2004. “Fiscal Policy and Financial Depth”, NBER WP No. 10532. (paper)

8.3 External Problems and International Financial Architecture

* Broner, F., G. Lorenzoni, and S. Schmukler, 2007. “Why Do Emerging Economies Borrow Short Term?”, mimeo CREI. (paper)

* Caballero, R. and S. Panageas, 2007. “A Quantitative Global Equilibrium Model of Sudden Stops and External Liquidity Management”, MIT mimeo, September.

Calvo, G., 2007. “Crises in Emerging Market Economies: A Global Perspective”, NBER WP No. 11305. (paper)

Caballero, R. and S. Panageas, 2006. “Hedging Sudden Stops and Precautionary Contractions,” Journal of Development Economics forthcoming. (paper)

Calvo, G., 2005. Emerging Markets in Turmoil: Bad Luck or Bad Policy?. MIT Press

Allen, F. and D. Gale, 2000. ``Financial Contagion,’’ Journal of Political Economy. (paper)

Holmstrom, B. and J.Tirole, 1998. "Financial Intermediation, Loanable Funds, and the Real Sector," Quarterly Journal of Economics 112(3), pp.663-691. (paper)

Borensztein, E., M. Chamon, O. Jeanne, P. Mauro, and J. Zettelmeyer, 2005. “Sovereign Debt Structure for Crisis Prevention”, IMF Occasional Papers 237.

Mody, A., P. Gupta, and B. Eichengreen, 2006. “Sudden Stops and IMF Supported Programs”, IMF Working Papers 06/101. (paper)

Eichengreen, B. and R. Hausmann, 2005. Debt Denomination and Financial Instability in Emerging Market Economies. Chicago and London: University of Chicago Press.

Eichengreen, B., R. Hausmann, and U. Panizza, 2005. The Pain of Original Sin. Chicago and London: University of Chicago Press.

Eichengreen, B., K. Kletzer, and A. Mody, 2003. “Crisis Resolution: Next Steps”, in Brookings Tarde Forum 2003, eds. S. Collins and D. Rodrik, Brookings Institution Press. (paper)

Bolton, P. and O. Jeanne, 2005. “Structuring and Restructuring Sovereign Debt: The Role of Seniority”, CEPR Discussion Papers 4901. (paper)

Eichengreen, B., and A. Mody, 2004. “Do Collective Action Clauses Raise Borrowing Costs?” Economic Journal 114(495), pp. 247-64. (paper)

Eichengreen, B., 2003. “Restructuring Sovereign Debt”, Journal of Economic Perspectives 17(4), pp. 75-98. (paper)

Haldane, A., A. Penalver, V. Saporta, and H. Shin, 2005. “Analytics of Sovereign Debt Restructuring”, Journal of International Economics 65(2), pp. 315-33. (paper)

Portes, R., 2004. “Resolution of Sovereign Debt Crises: The New Old Framework”, CEPR Discussion Papers 4717, forthcoming in Economic Integration and Social Responsibility, ed. F. Bourguignon and P. Jacquet, Oxford University Press, 2005. (paper)

Weinschelbaum, F. and J. Wynne, 2005. “Renegotiation, Collective Action Clauses and Sovereign Debt Markets”, Journal of International Economics 67(1), pp. 47-72. (paper)

9. Appreciations and Overvaluations (1 lecture)

* Caballero, R.J. and G. Lorenzoni, 2007 “Persistent Appreciations, Overshooting and Optimal Exchange Rate Intervention,” MIT mimeo, April. (paper)

“Yuan step from the edge”, The Economist March 30, 2006.

Eichengreen, B., 2004. “Chinese Currency Controversies”, CEPR Discussion Papers 4375. (paper)

Prasad, E., T. Rumbaugh and Q. Wang, 2005. “Putting the Cart before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China”, IMF Policy Discussion Paper No. 05/1. (paper)

Goldstein, M., 2005. “Renminbi Controversies”, IIE mimeo.

Williamson, J., 2003. “The Renminbi Exchange Rate and the Global Monetary System”, Outline of a lecture delivered at the Central University of Finance and Economics in Bejing, China. (online)

Corden, W.M., 1984 “Booming Sector and Dutch Disease Economics: Survey and Consolidation,” Oxford Economic Papers 36(3), November pp. 359-380. (paper)

Krugman, P. 1987, “The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences of Mrs. Thatcher,” Journal of Development Economics 27, 41-55. (paper)

10. Currency Crises and Financial Frictions (2 lectures)

10.1 First and second generation models of currency crises

* Krugman, P, 1979. “A Model of Balance of Payments Crises”, Journal of Money, Credit and Banking 11(3), pp. 311-325. (paper)

Flood, R. and P. Garber, 1984. “Collapsing Exchange Rate Regimes: Some Linear Examples.” Journal of International Economics 17, pp. 1-13. (paper)

Krugman, P., 1992. Currencies and Crises, MIT Press.

Obstfeld, M, 1996. “Models of Currency Crises with Self-Fulfilling Features", European Economic Review 40, pp. 1037-1047, also NBER WP No. 5285. (paper)

Obstfeld, M., 1994. “The Logic of Currency Crises”, NBER WP No. 4640.

Burnside, C., M. Eichenbaum, and S. Rebelo, 2005. “Government Finance in the Wake of Currency Crises”, mimeo Northwestern University (paper).

Alesina, A and Drazen, A., 1991. “Why Are Stabilizations Delayed?” American Economic Review 81 (5), pp. 1180-1188, December. (paper)

Morris, S. and H. S. Shin, 1998. “Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks”, American Economic Review 88, pp. 587-97, June. (paper)

Heinemann, F., 2000. “Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment”, American Economic Review 90, pp. 316-18. (Correction to Morris and Shin's theorem 2.) (paper)

10.2 Moral Hazard

Chang, R., 1999. “Understanding Recent Crises in Emerging Markets,” Federal Reserve Bank of Atlanta Economic Review, pp. 6-17, Second Quarter. (paper)

Dooley, M., 2000. “A Model of Crises in Emerging Markets,” Economic Journal, v. 110, pp. 256-272. (paper)

Krugman, P., 1998. “What Happened to Asia?” MIT mimeo. (paper)

Mc Kinnon, R., and H. Pill, 1996. “Credible Liberalizations and International Capital Flows: The Overborrowing Syndrome,” in T. Ito and A. Krueger (eds.), Financial Deregulation and Integration in East Asia, Chicago: Chicago University Press.

10.3 Balance sheets and currency crises

* Aghion, P., P. Bacchetta, and A. Banerjee, 2004. “Financial Development and the Instability of Open Economies”, Journal of Monetary Economics 51(6) September. (paper)

Aghion, P., P. Bacchetta, and A. Banerjee, 2000. “A Simple Model of Monetary Policy and Currency Crises”, European Economic Review 44, pp. 728-738. (paper)

Calvo, G., 1998. “Capital Flows and Capital Market Crises: The Simple Analytics of Sudden Stops.” Journal of Applied Economics 1, pp. 35-54. (paper)

Cespedes, L., R. Chang, and A. Velasco, 2004. “Balance Sheets and Exchange Rate Policy”, American Economic Review 94 (4), pp. 1183-93. (paper)

Cespedes, L., R. Chang, and A. Velasco, 2003. “IS-LM-BP in the Pampas”, IMF Staff Papers 50, pp. 143-56. (paper, comment)

Krugman, P., 1999. “Balance Sheets, the Transfer Problem and Financial Crises”, in: International Finance and Financial Crises, P. Isard, A. Razin and A. Rose (eds.), Kluwer Academic Publishers.

Burnside, C., M. Eichenbaum, and S. Rebelo, 2001. “Hedging and Financial Fragility in Fixed Exchange Rate Regimes”, European Economic Review 45 (7), pp. 1151-1193. (paper)

Devereux, M., P. Lane and J. Xiu, 2006. “Exchange Rate Regimes and Monetary Policy Rules for Emerging Markets”, Economic Journal 116(April), pp. 478-506. (paper)

Gertler, M., S. Gilchrist, and F. Natalucci, 2003. “External Constraints on Monetary Policy and the Financial Accelerator”, NYU mimeo. (paper)

Dornbusch, R., 2001. “A Primer on Emerging Market Currency Crises”, in S. Edwrads and J. Frankel (eds.), Preventing Crises in Emerging Markets. Chicago: The University of Chicago Press. (NBER working paper)

Tirole, J., 2002. Financial Crises, Liquidity and the IM System, Princeton University Press.

Krugman, P., 2001. “Balance Sheets, the Transfer Problem and Financial Crises”, in P.Isard, A. Razin and A.K. Rose (eds.), International Finance and Financial Crises: Essays in Honour of Robert P. Flood, Jr. Kluwer Academic Publishers.

Calvo, G., 2003. “Explaining Sudden Stops, Growth Collapses and BOP Crises: The Case of Distortionary Output Taxes”, IMF Staff Papers 50, pp. 1-20. (paper)

10.4 Financial panics and liquidity crises

*Chang, R., and A. Velasco, 1999. “Liquidity Crises in Emerging Markets: Theory and Policy,” in NBER Macroeconomics Annual 1999 (Ben Bernanke and Julio Rotemberg, eds.), The MIT Press, Cambridge. (paper)

Diamond, W. D. and P.H. Dybvig, 1983. “Bank Runs, Deposit Insurance and Liquidity”, Journal of Political Economy 91 (3), pp. 401-419. (paper)

Chang, R., and A. Velasco, 2000. “Financial Fragility and the Exchange Rate Regime,” Journal of Economic Theory 92, pp. 1-34. (paper)

Chari, V.V. and P. Kehoe, 2003. “Hot Money,” Journal of Political Economy 111, pp. 1262-92. (paper)

Caballero, R.J. and A. Krishnamurthy, ``Collective Risk Management in a Flight to Quality Episode,’’ Journal of Finance, forthcoming. (paper)

11. Target Zones and Realignments (1 lecture)

* Bertola, G. and R. Caballero, 1992. “Target Zones and Realignments”, American Economic Review 82(3), pp. 520-36. (paper)

Krugman, P., 1992. Speculative Attacks on Target Zones. Cambridge and London: MIT Press.

Krugman, P., 1991. “Target Zones and Exchange Rate Dynamics”, Quarterly Journal of Economics 106(3), pp. 669-82. (paper)

Dumas, B. and L. Svensson, 1994. “How Long Do Unilateral Target Zones Last?”, Journal of International Economics 36(3-4), pp. 467-81. (paper)

Svensson, L., 1994. An Interpretation of Recent Research on Exchange Rate Target Zones. Cambridge; New York and Melbourne: Cambridge University Press.

Svensson, L., 1991. “Target Zones and Interest Rate Variability”, Journal of International Economics 31(1-2), pp. 27-54. (paper)

Bertola, G. and L. Svensson, 1993. “Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models”, Review of Economic Studies 60(3), pp. 689-712. (paper)