Macro and International Economics
15.015
Summer: 2008

This course discusses the main current issues in international economics. We study fiscal and monetary policy in developed countries and discuss, in particular, the performance of the U.S. and Japan. After spending time in these aspects, we move to emerging markets and start studying stabilization programs, the different types of inflation, and the role of the exchange rate: fixed versus flexible. What is a currency board, or dollarized economy, and what purpose they serve? We analyze the causes of financial crises, as well as currency crises, how can they be prevented, and how should we deal with their consequences. Finally, we study the role of the IMF and WB and how should they be reformed. We study the new theories of trade and their implications on free-trade agreements and industrial policy. We study the new theories of development and the role that institutions and geography play.

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Readings:

Most of the readings are from the following book (it can be found in The Coop).

• "International Economics and International Economic Policy: A reader", Philip King and Sharmila King [K],

I have also prepared a list of optional / additional readings: These focus on the analytical material and often go beyond what we will cover in class. Theses are based on:

• "Toward a new international financial architecture" Institute for International Economics, 1999, Barry Eichengreen [EIFA].
• "Financial Crises" Oxford University Press, 2002, Barry Eichengreen [EFC].
• "Central Banking in Theory and Practice" MIT Press, 1998, Alan Blinder [A].
• Blanchard, Third Edition, "Macroeconomics", [B].
• Paul Krugman and Maurice Obstfeld, 2002, "International Economics", Theory and Policy, Addison-Wesley, 6th Edition, [KO]

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Organization:

Grade: the grade consists of two parts: Debates (75%), Participation (25%)

The idea of the debates is that the class in groups of 8 (any two study groups) debate about current issues in international economics. We will have three debates in the class. All teams prepare a presentation in support and against the topic chosen for debate. These presentations have to be delivered to me (with the group identified) the morning (before 8:00 am) of the debate. On the day of the class, I choose two teams, their order, and the positions they have to defend. Then we start a debate. The debate is a joined class for all sections that lasts 3 hours; after the debate we have a general discussion how we should think about the problems at hand.

The TA’s and I will evaluate the participation. The following rule applies: if you do not come to class you get -2, if you are late you get a -2, if you go to class and say nothing you get 0. This is the easy part; the rest is a little bit more complicated: we will give 1, 2 and 3 points for participation. At most only one person per class will receive a 3. The TA's and I will decide so after the class. A 3 is a comment that moves the dynamics of the discussion in the class significantly. 2 is a good comment that generates discussion, and 1 is a standard comment. It is important to remember that you get the grade for the class for the best of your participations. If the student speaks 24 times, each of them with a comment that we consider of quality 1, the student will get a 1. Participation is obviously subjective. So, please be aware of the very high weight it has on your grade and talk to the TA's to be sure you have feedback on how are you doing.

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Syllabus				Required Reading	Optional Reading
Day		Session	Topic
Jul	24	1	Keynesian Multiplier: Baby Sitter Cooperative	Fiscal multiplier	B 3, 4
Jul	25	2	ISLM (Basic)	ISLM	B 5
			HBS: The German Hyperinflation of 1923 (Download Case HERE) Very important, we are doing this download only because there was a problem with the package. get your package tomorrow, and i will delete this link saturday).	9-798-048
Jul	28	3	ISLM (Fiscal and Monetary Policy)
Jul	29	4	Japan's recession HBS: The Great Depression: Causes and Impact (Abridged)	9-391-258	B 24, 25, 26
Jul	31	5	SIMULATION: Fixed Exchange Rates and Central Bank Policy	K 24	A KO 12, 13, 14
Aug	1	6 7	SIMULATION: Financial Crises and Currency Crises	COMBINED SESSION (1:00-4:15)	EFC KO 15, 16
Aug	4	8	Exchange Rate Determination	BBNN	B 18, 19, 20, 21 KO 17, 22
Aug	5	9	Strategies for Growth: Singapore HBS: Accounting for Productivity Growth HBS: How do economies grow?	9-794-051 97-309	B 10, 11, 12, 13
Aug	6	10	Latin Triangle HBS: Menem and the Populist Tradition in Argentina	K 22 9-700-061	K 31, 32
Aug	7	11	China and Brazil: Prospects and the Washington Concensus	K 18, 35 KO 11	K 37
Aug	8	12 13	DEBATE 1: Inflation and Food Prices: Should central banks in the world have a tighter monetary policy?	COMBINED SESSION (1:00-4:15) Rules
Aug	12	14	Trade Theories: Comparative Advantages SIMULATION HBS: The Economic Gains From Trade: Comparative Advantage	K 1 9-796-184	KO 2
Aug	14	15	New Trade Theories: Free Trade Agreements, Strategic Trade Policy, Globalization	K 15, 16, 17	KO 6
Aug	15	16 17	DEBATE 2: Is growth in India sustainable (next 10 years)?	COMBINED SESSION (1:00-4:15) Rules
Aug	19	18 19	DEBATE 3: Intellectual Property Rights in Botswana: Should they copy HIV drugs?	COMBINED SESSION (1:00-4:15) Rules

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General Information:

My information:	My Assistant:	The TA's:
Roberto Rigobon E52-431 x8-8374 rigobon@mit.edu. http://web.mit.edu/rigobon/www/	Rebecca Bourke E52-450 x3-9746 rbourke@MIT.EDU	Jean Paul L'Huillier lhuill@MIT.EDU

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Rules for Debate:

• The teams consist of 8 (7 to 9) participants. Teams are formed the first week. On Friday of the first week you have to send to us by email the name of the participants and a name you have chosen for the team.
• Each team prepares a presentation that has to be sent to us (EMAILS) by 8:00 am the morning of the debate. There has to be two well labeled presentations in Power Point or Adobe, one that supports the YES and the other that supports the NO. In other words, each team knows which topic they will be debating but you do not know if you will be debating in favor or against. So, you have to prepare both arguments.
• Before the class, we take a poll on the participants in the class. Significant others are allowed in the class. they will also fill the survey but their votes will not be counted.
• After the poll is taken, I decide which team will discuss in favor or against, and in which order (in a very dictatorial fashion).
• The first team has 12 minutes to present.
• Then the second team has 15 minutes to present/rebut.
• And I will allow 2 more minutes for the first team to rebut back (if they want to).
• I might allow other rebuttals – again in a very dictatorial fashion.
• Immediately after this period we take the poll again.
• Members of the teams debating will fill the polls but their votes will not be taken into account in the final tally. The same goes for the signifcant others participating in the class.
• The team that moves the public opinion in the direction they were defending wins the debate. It does not matter by how much. This is a one - zero type of grade. If the public opinion did not change, both teams lose.
• After this time, we open for general discussion.