15.012 
Applied Macro and International Economics
 

15.012
Applied Macro and International Economics


This course investigates the macroeconomic environment in which firms operate. It aims to provide a good grounding in macroeconomic concepts and tools, using specific country experiences. The course first develops the basic tools of macroeconomic management, predominantly monetary and fiscal policy. We will use both historic case studies as well as discussions of modern policy for context. This is focused on the short run and will therefore also include a discussion of what exchange rate decisions economies make. We also discuss why crises occur and how to manage these crises (both currency and financial). Second, we concentrate on the behavior of exchange rates. We study short run and long run theories of nominal exchange rates, as well as look at the different exchange rate regimes used in the world. We will study the advantages and disadvantages of flexible, fixed, and managed exchange rate systems. We study capital controls and other policies devoted to manage capital flows. Third, we finish the course by introducing some of the long run issues in developing and emerging economies. We will spend some time discussing alternative strategies to growth and development that have been followed by various economies to understand their success (or lack thereof). Overall, the class will try to cover a broad array of emerging economies from China and India to Latina America, as well as a good discussion of the issues facing developed countries in the 21st century.



  1. BulletDescription

  2. BulletClass Schedule and Required Readings

  3. BulletContact information

  4. BulletFull Syllabus:


Schedule and Reading


02-02   

Introduction and Money Multiplier

  1. BulletFiscal Multiplier Notes (BS.pdf)

  2. BulletBaby-Sitter’s coop (Baby-Sitting the Economy.pdf)


02-04   

Germany and Zimbabwe:

Monetary Policy and Inflation

  1. BulletHBS Case #9-798-048: The German Hyperinflation of 1923 


02-07

IS-LM Model

  1. BulletClass Notes (ISLM.pdf)


02-09

Japan, Ireland, and the Great Depression:

Application of the ISLM Model         

  1. BulletHBS Case #9-391-258: The Great Depression: Causes and Impact (Abridged)

  2. BulletHBS Case #9-708-017:  Kinyuseisaku: Monetary Policy in Japan


02-11

AD-AS and Long Run Adjustment:

The Connection to Inflation

  1. BulletHBS Note #9-797-076: Fiscal Policy: Managing Aggregate Demand


02-14

Central Bank Accounting (simulation)

  1. BulletClass Notes (CentralBankAccounting.pdf)


02-16

World Through Inflation

  1. BulletClass Notes


02-18

Banking and Financial Crisis (simulation)

  1. BulletClass Notes


02-22 

Theories of nominal exchange rates: short-run and long-run

  1. BulletClass Notes


02-23

Fiscal Currency Crises:

GAME: Greece, Argentina, Mexico, and Everybody else

  1. BulletHBS Case #9-700-061: Menem and the Populist Tradition in Argentina

  2. BulletHBS Case #9-704-004: The 2001 Crisis in Argentina: An IMF-Sponsored Default? (A)


02-25

Self-fulfilling Currency Crises:

MIT: Malaysia, Indonesia, and Thailand

  1. BulletHBS Case #9-708-001: Chronology of the Asian Financial Crisis

  2. BulletHBS Case #9-709-004: Financial Crisis in Asia: 1997-1998 (Abridged)


02-28   

Exchange-Rate Regimes

  1. BulletHBS Case #9-704-038: Exchange Rate Regimes


03-02

Capital controls, Exchange rate regimes, and Unemployment: The Unholy Trinity

  1. BulletHBS Case #9-702-082: Capital Controls


03-04

US Financial Crisis

  1. BulletHBS Case #9-706-002: The US Current Account Deficit

  2. BulletHBS Case #9-709-057: The First Global Financial Crisis of the 21st Century


03-07  

Debate 1

  1. BulletThe International Role of the Dollar


03-09   

Debate 2

  1. BulletThe Euro


03-11   

Introduction to Development Economics

  1. BulletHBS Case #9-798-066: China: Facing the 21st Century






Description


The class will be co-taught by Professors Alberto Cavallo and Roberto Rigobon. On any given day, all three sections will be taught by the same professor. All sections will therefore cover exactly the same material and have exactly the same set of classes.


Note that this class is meant to be an introduction to macro and international economics. There will be  additional macro and international classes that will build on this material. In particular, Roberto will teach 15.014 in H2, a class on “Macroeconomic, Development and Sustainability”, for which 15.012 is required/a prerequisite. And Kristin Forbes teaches 15.018, a class on “Global Economic Challenges”, for which 15.012 is recommended.


There are three TAs for the class, one for each section. There will be no recitations for this class (unless requested), but the TAs will each hold office hours by appointment.


Before each class, you are expected to read at least the relevant case and usually an extra article and/or note. Below is a list of required readings for each class. These are also available in the reading packet. There is also a list of optional readings (organized by class) at the end of the main syllabus. These optional readings are meant for those interested in further reading or for those who want a different reference for the tools and material covered in class. The optional readings are not in the reading packet – they are meant purely for extra reading (all the articles are available on Lexis Nexis). In that spirit, there are three optional text books which you can use if you want more detail on any of the theories covered in class: “Macroeconomics”, 7th Edition, by N. Gregory Mankiw (referred to as M below), “Macroeconomics and the Financial Systems”, 1st Edition by N. Gregory Mankiw and Laurence Ball (referred to as MFS below) and “International Economics: Theory and Policy”, 9th Edition, by Paul Krugman and Maurice Obstfeld (referred to as KO below). Multiple copies of both are available on reserve at the library.


This is a case/readings based class. There is no final exam. Instead, there will be two short graded assignments, and two classes will be reserved for debates, which are described in detail below.



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Contact Information


Alberto Cavallo

  1. BulletE62-512

  2. Bullet617-715-4837

  3. Bulletacavallo@mit.edu


Roberto Rigobon

  1. BulletE62-516

  2. Bulletx8-8374

  3. Bulletrigobon@mit.edu.

  4. Bullethttp://web.mit.edu/rigobon/www/



Administrative Assistant:

Sarah Hufford

  1. BulletE52-450

  2. Bulletx3-9746

  3. Bulletshufford@mit.edu.


Teaching Assistants:

  1. BulletAymeric Sarrazin    sarrazin@mit.edu

  2. BulletAndreina Toro        abtoro@mit.edu

  3. BulletSadia Sharmin        sadias@mit.edu




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