Instructor: Selin Sayek
Office: 107
E-mail: sayek@bilkent.edu.tr
Office hours: Tuesday 14:00 – 16:00
Thursday 11:45-12:45
Web-page: http://www.bilkent.edu.tr/~sayek/eco563main.htm
Course description: This course focuses on macroeconomic issues and policies in open economies. The discussions will be based on both theoretical and empirical investigation of the international macro and finance issues. However, emphasis will be given to, but is not limited to, empirical applications. For each topic there will be both theoretical and empirical based readings. As the course focuses on fundamental policy issues you are expected to follow current news from the domestic and the international press.
Requirements: The evaluation of the course is based on three items: (i) in-class written exam, (ii) presentations of article enlisted in the below reading list and at weeks when you are not presenting you will be expected to participate in the discussions, and (iii) writing a research paper related to the topics covered in class and presenting it in class. The grade distribution of the requirements is as follows:
Requirement
Percentage
In-class written exam
30
Presentation of published article 30
Research paper and presentation 40
TOTAL
100
Important dates:
· October 17: Submit maximum 1 page proposal for the research
paper. If the proposal requires resubmission October 24 is the deadline.
· October 31: Provide a broad outline for the research paper.
· November 21: Provide literature review for the research paper.
· December 19: Provide the preliminary analysis for the research
paper.
· January 9: Submit final version of the research paper.
I. Week 1 (September 26): Introduction
Basic relations in the open economy – a refreshment
Reading: Dornbusch, Rudiger (1980), Open Economy Macroeconomics, Basic
Books Inc., New York.
Chapters 1 and 2.
World capital flow patterns – an overview
Reading: Eichengreen, Barry (2003), Capital Flows and Crises, MIT Press,
Cambridge MA.
Chapter 1.
II. Week 2 (October 3): An intertemporal approach to current account
balance
Readings: Obstfeld, M. and K. Rogoff (1996), Foundations of International
Macroeconomics.
Chapter 1: Intertemporal Trade and the Current Account Balance
Chapter 2: Dynamics of Small Open Economy
Obstfeld, M. and K. Rogoff (1994), “The Intertemporal Approach to Current Account”, NBER Working Paper 4893.
Taylor, A. (1996), “International Capital Mobility in History: the Saving-Investment Relationship”, NBER Working Paper 5743.
Feldstein, M. And Horoika, C. (1980), “Domestic Saving and International Capital Flows”, Economic Journal.
Baxter, M. And M. Crucini (1993), “Explaining Savings—Investment Correlations”, American Economic Review.
Tesar, L. (1991) “Savings, Investment, and International Capital Flows,” Journal of International Economics.
Frankel, J. (1992), “Measuring International Capital Mobility: A Review”, American Economic Review.
Obstfeld, M. (1997), “Open Economy Macroeconomics: Developments in Theory and Policy”, NBER Working Paper 6319.
III. Week 3 (October 10): International Capital Flows: Empirical
investigation of causes and effects
International Financal Integration: Causes and Consequences
Edison, Levine, Ricci and Slok (2003) “International Financial Integration and Economic Growth”, IMF Working Papers.
Lane and Milessi-Feretti (2001) “The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries”, Journal of International Economics.
Lucas (1990) “Why doesn’t capital flow from rich to poor countries”, American Economic Review.
Tornell and Velasco (1992) “The tragedy of the commons and economic growth: why does capital flow from poor to rich countries”, Journal of Political Economy.
Bekaert, Harvey and Lundblad (2001) “Does financial liberalization spur growth?”, NBER working paper.
Levine (2002) “International Financial Liberalization and Economic Growth”, Review of International Economics.
Barro, Mankiw, Sala-i-Martin (1995) “Capital Mobility in Neoclassical Models of Growth”, American Economic Review.
Eichengreen, B. and M. Mussa, (1998), “Capital Account Liberalization: Theoretical and Practical Aspects”, IMF Occasional Paper.
Kaminsky, G. and S. Schmukler (2002), “Short-run Pain, Long-run Gain: The Effects of Financial Liberalization”, mimeo.
IV. Week 4 (October 17): Foreign Direct Investment
Albuquerque, R., N. Loayza, and L. Serven (2003), “World Market Integration through the Lens of Foreign Direct Investors”, unpublished working paper.
Borenzstein, de Gregario and Lee (1998), “How Does Foreign Direct Investment Affect Economic Growth?”, Journal of International Economics.
Gorg,H. And D. Greenaway (2002) “Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment”, unpublished mimeo.
Aitken, B. And A. Harrison (1999), “Do domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela”, American Economic Review.
Alfaro, Chanda, Kalemli-Ozcan and Sayek (forthcoming), “FDI and Economic Growth: the Role of Local Financial Markets”, Journal of International Economics.
V. Week 5 (October 24): Aid Flows
Bulir and Hamann (2003) “Aid volatility: an empirical assessment”, IMF Staff Papers 50(1).
Rodrik (1995) “Why is there multilateral lending?”, NBER Working Paper.
Chang, C., E. Fernandez-Arias, and L. Serven (1998)“Measuring aid flows: a new approach”, World Bank Research Paper.
Yano and Nugent (1999) “Aid, nontraded good and the transfer paradox in small countries”, American Economic Review 89(3).
Dalgaard and Hansen (2001) “On aid, growth and good policies”, Journal of Development Studies 37(6).
Lensink and White (2001) “Are there negative returns to aid?”, Journal of Development Studies 37 (6).
Guillamont and Chauvet (2001) “Aid and performance: a reassessment”, Journal of Development Studies 37(6).
Hansen and Tarp (2001) “Aid and growth regressions”, Journal of Development Economics 64.
Boone (1996) “Politics and the effectiveness of foreign aid”, European Economic Review 40.
Collier and Dehn (2001) “Aid, shocks and growth”, World Bank Research Policy Paper.
Alesina and Weder (2002) “Do corrupt governments receive less foreign aid?”, American Economic Review 92(4).
VI. Week 6 (October 31): Balance of Payments Crises: Theory
Krugman, P. (1979), “A Model of Balance of Payments Crises”, Journal of Money, Credit and Banking.
Obstfeld, M. (1986), “Rational and Self-fulfilling Balance of Payments
Crises”, American Economic Review.
Obstfeld, M., (1994) “The Logic of Currency Crises”, NBER Working Paper.
Calvo, G., (1987) “Balance of Payments Crises in a Cash-in-Advance Economy”,
Journal of Money, Credit and Banking.
Flood, R. and N. Marion (1999), “Perspectives on the Recent Currency
Crisis Literature”, International Journal of Finance and Economics.
Flood, R. and N. Marion, (1997), “Policy Implications of Second-Generation Crisis Models”, IMF Staff Papers.
Roberto Chang, Andres Velasco, “Liquidity Crises in Emerging Markets: Theory and Policy,” NBER Working Paper No. W7272, July 1999.
Enrique G. Mendoza, Martin Uribe, “The Business Cycles of Balance-of-Payment
Crises: A Revision of Mundellan Framework,” NBER Working
Paper No. W7045, March 1999 .
Ricardo J. Caballero, Arvind Krishnamurthy, “Emerging Market Crises: An Asset Markets Perspective,” NBER Working Paper No. W6843, December 1998.
Dani Rodrik, Andres Velasco, “Short-Term Capital Flows,” NBER Working
Paper No. W7364, September 1999.
VII. Week 7 (November 7): Balance of Payments Crises: Evidence
Goldstein, M., G. Kaminsky and C. Reinhart (2000), Assessing Financial Vulnerability: An Early Warning System for Emerging Markets, Institute for International Economics.
Sachs, J., Tornell, A. And A. Velasco, (1996), “Financial Crises in Emerging Markets: the Lessons from 1995”, Brookings Papers on Economic Activity.
Frankel, J. And A. Rose (1996), “Currency crashes in emerging markets. An empirical treatment”, Journal of International Economics.
Kaminsky, G. And C. Reinhart (1999) “The Twin Crises: The Causes of Banking and Balance-of-Payments Problems”, American Economic Review.
Berg, A. And C. Patillo (1999), “Predicting currency crises: The indicators approach and an alternative”, Journal of International Money and Finance.
Berg, A., E. Borenzstein, G. Milessi-Ferretti, and C. Patillo (1999), “Anticipating Balance of Payments Crises: The Role of Early Warning Systems”, IMF Occasional Papers.
Kaminsky, G. (1999), “Currency and Banking Crises: The Early Warnings of Distress”, IMF Working Paper.
VIII. Week 8 (November 14): Midterm exam
IX. Week 9 (November 21): Contagion
Kaminsky, G. and S. Schmukler (1999) “What causes market jitters? A
chronicle of Asian crises”, Journal of International Money and Finance.
Kristin Forbes, Roberto Rigobon, “No Contagion, Only Interdependence:
Measuring Stock Market Co-movements,” NBER WP W7267, July 1999.
Barry Eichengreen, Andrew K. Rose, Charles Wyplosz, “Contagious Currency Crises,” NBER Working Paper 5681, July 1996
Forbes, Kristin J., "Are Trade Linkages Important Determinants of Country Vulnerability to Crises? NBER WP# W8194, March 2001.
X. Week 10 (December 5): International Asset Markets
Lewis, K., (1996) “What Can Explain the Apparent Lack of International Consumption Risk-sharing?” Journal of Political Economy.
Tesar, L., “Evaluating the Gains from International Risksharing,” Carnegie-Rochester Conference Series on Public Policy 42, June 1995, 95-142.
Kalemli-Ozcan, S., Sorenson, B. and Yosha, O. (2003) "Risk sharing and Industrial Specialization: Regional and International Evidence," American Economic Review.
Karen Lewis, "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature 37 (June 1999), 571-608.
Obstfeld, M. (1994) “Risk-Taking, Global Diversification and Growth,” American Economic Review.
Imbs, Jean and Wacziarg, Romain (2003), “Stages of Diversification”, American Economic Review.
Research paper presentations and discussions
XI. Week 11 (December 12): Domestic Financial Markets – Role in Allocation of Capital and Growth
King and Levine (1993) “Finance, entrepreneurship and growth”, Journal of Monetary Economics.
Levine (1997) “Financial Development and Economic Growth: Views and Agenda”, Journal of Economic Perspectives.
Wurgler (2000) “Financial Markets and the Allocation of Capital”, Journal of Financial Economics.
Levine and Zervos (1998) “Stock markets, banks and economic growth”, American Economic Review.
Rajan and Zingales (1998) “Financial dependence and growth”, American Economic Review.
LLSV (2000) “Investor Protection and Corporate Governance”, Journal of Financial Economics.
Beck, Levine and Loayza (2000) “Finance and Sources of Growth”, Journal of Financial Economics.
Research paper presentations and discussions
XII. Week 12 (December 19): Business Cycles and Synchronization
Forbes, K. And M. Chinn (2003), “A Decomposition of Global Linkages in Financial Markets over Time”, MIT working paper.
Kose, A., E. Prasad, and M. Terrones (2003), “How Does Globalization Affect the Synchronization of Business Cycles”, IMF Working Papers.
Sayek, S. And D. Selover (2002), “International Interdependence and
Business Cycel Transmission between Turkey and the European Union”, Southern
Economic Journal.
Research paper presentations and discussions
XIII. Week 13 (December 26), Week 14 (January 2) and Week 15 (January 9)
Economic Growth, discussions by Prof. Erinç Yeldan.