International Monetary Economics 2017-2018 (GMEP - Module II)

Academic Year 2017-2018

Lecturers: Gianluigi CostanzoRodolfo Helg, Marco Mira d'Ercole

Aim of the course: The aim of the course is to give the student a framework to interpret and comment the major evolutions on international financial markets. The course will cover the following major areas: exchange rate determination, open economy macroeconomic policy, international monetary system, measurement of macroeconomic activity and well-being. The level of presentation of the various topics will utilise mainly a geometrical approach. Continuous reference to real-life economic evolutions is a characteristic of the course.

for sample exam see bottom of the page

Period: I semester


for the first part, chapters from the following two textbooks are utilized:

(C) L.S.Copeland, Exchange Rate and International Finance, Pearson, 6th edition, 2014
(FT) Feenstra R.C., A.M.Taylor, J. Taylor, International Macroeconomics, 3rd ed, Worth Publishers 2015.

other useful texbooks for the first part are:

(S) S.Suranovic, International finance: theory and policy analysis,p


for the second part the following book will be widely utilized:

(R) Rajan R.G., Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton University Press, 2010

for the third part the following books will be widely utilized:

(SSF) J. Stiglitz, A. Sen, and J.P. Fitoussi (2011), Mis-measuring our Life: Why GDP doesn't add up , The New Press (also Part1 chpts 1, 2, 3 in the original 2009 Report version) (video book presentation)
(DC) D. Coyle (2014), GDP: A Brief but Affectionate History, Princeton U. P. 
(BME) R. Boarini and M. Mira d'Ercole (2014), "GDP as a Welfare metric: the 'Beyond GDP' agenda", chapter 15, in OECD, Understanding national Accounts, OECD Publishing

Further readings are posted below, after each topic

* = compulsory material for the exam



PART I   The theory of exchange rate determination (Rodolfo Helg)

1. Introduction (globalisation, balance of payments, the foreign exchange market, a brief history of exchange rate arrangements)

FT chpt 1

2. Exchange rates and interest rates (CIP, UIP, market efficiency)

*  FT chpt 2
* Lecture slides
(C) chpt 3
(S) chpt. 20 (20.4-20.5-20.6)
Borio C., R. McCauley, P. McGuire, V. Sushko, Bye-bye covered interest parity, VoxEu 28 September 2016
Isard P., Uncovered interest parity, IMF WP 06/96, April 2006

3. Exchange rates and prices (PPP and monetary model)

*  FT chpt 3
* Lecture slides
(C) chpt 1, 2
(S) chpt 5; chpt 10; chpt. 30;
Catao L.A.V., Why real exchange rate, Finance&Development, September 2007
The Big Mac Index, The Economist web site
PPP data from OECD
Rogoff K., Froot K.A., Kim M., "The law of one price over 700 years", IMF WP No. 01/174, November 2001.
Taylor A.M., M.P. Taylor, The purchasing power parity debate, Journal of Economic Perspective, 18, 4, Fall 2004
Neary P., Measuring competitiveness, IMF WP 06/209, September 2006

4. The Mundell-Fleming Model of exchange rate determination (a quick revision)

* (C) chpt 6 (requires knowledge of material in chpt. 4)
Boughton J.M., On the Origins of the Fleming-Mundell Model, IMF Working Paper No. 02/107, 2002

5. The Euro and the Optimal Currency Areas theory

* FT chpt 22
* Lecture  slides
uro area map and data
P. DeGrauwe, Economics of Monetary Union, Oxford: Oxford University Press, 11th edition, 2016 (chpt.1)

 PART II  Growth, Business Cycle and Financial Market Crises (Gianluigi Costanzo)

In this section of the course, we will deal with issues related to economic cycles, with special attention to the boom-bust cycles generated by financial activity. We will look at the impact of the entry of new players (emerging economies) on the global economic scene and how financial markets have evolved to accommodate the real economy imbalances that have been created over the last 30 years. We will examine how new financial instruments and regulatory changes favored the growth of debt, leverage and interconnectedness, leading to the Great Financial Crisis of 2008 and the Great Recession that followed it.  We will also examine the causes of the Euro Crisis and the risks of strong credit growth in China to its financial stability. What have been the cyclical responses undertaken to overcome these crisis? What should be the structural responses to avoid a repeat, or, more likely, to contain its negative effects?

6.  Growth and the business cycle (lecture 1)

  • determinants of growth and business cycle theories
  • uncertainty, behavioral biases, manias, panics and crashes
  • this time is different: economic and financial crisis in history

* class presentation 1 (long version)
Charles P. Kindleberger, Robert Z. Aliber: Manias, Panics and Crashes: A History of Financial Crises, Fifth Edition, Palgrave 2005, (chapters 1, 2, 4, 7, 8)
Nouriel Roubini, Steven Mihm: Crisis Economics, Penguin Books, 2011, (chapters 1, 2)
Carmen M. Reinhart, Kenneth S. Rogoff: This Time is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009, (chapter 14)

7. Globalization and Growth (lecture 2)

  • growth in emerging economies and global trade imbalances
  • jobless recoveries in DM economies and income inequalities
  • policy maker responses, cyclical or structural?

* class presentation 2  (long version)
* Raghuram G. Rajan: Fault Lines, How Hidden Fractures still Threaten the World Economy, Princeton University Press, 2010, (chapters 1, 2, 3, 4)
* Michael Spence: Globalization and Unemployment, The Downside of Integrating Markets, Foreign Affairs, July/August 2011
Justin Yifu Lin: The Quest for Prosperity, How Developing Economies can take off, Princeton University Press, 2012, (chapters 1, 2, 3, 4, 5)

8-9. Growth and Financial Markets (lecture 3 & 4)

  • innovation in financial instruments: derivatives, securitization and CDS
  • innovation in financial markets structure: the “regulated” banking system and the “unregulated” shadow banking system

class presentation 3  (long version)
NY Fed, Staff Reports: Understanding the Securitization of Subprime Mortgage Credit, 2008

class presentation 4  (long version)
* Raghuram G. Rajan: Fault Lines, How Hidden Fractures still Threaten the World Economy, Princeton University Press, 2010, (chapters 6, 7, 8)
Charles P. Kindleberger, Robert Z. Aliber: Manias, Panics and Crashes: A History of Financial Crises, Fifth Edition, Palgrave 2005, (chapters 10, 11)
Nouriel Roubini, Steven Mihm: Crisis Economics, Penguin Books, 2011, (chapters 3, 6)
Andrew G Haldane,  Vasileios Madouros,  The dog and the frisbee, Federal Reserve Bank of Kansas City’s 36th Economic Policy Symposium, “The Changing Policy Landscape”, Jackson Hole,Wyoming.
NY Fed, Staff Report: Shadow Banking, rev 2012,
IMF, Staff Discussion Note: Shadow Banking, Economics and Policy, 2012 

10.  Recent economic and financial crisis (lecture 5)

  • The Great Recession, 2008-09
  • The Euro Crisis

* class presentation 5 part 1  (long version)
* Raghuram G. Rajan: Fault Lines, How Hidden Fractures still Threaten the World Economy, Princeton University Press,2010, (chapter 5)
Nouriel Roubini, Steven Mihm: Crisis Economics, PenguinBooks, 2011, (chapter 4, 5)
Carmen M. Reinhart, Kenneth S. Rogoff: This Time is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009, (Part V: The US Subprime Crisis: An International and Historical Comparison) 

* class presentation 5 part 2  (long version)
Jay C. Shambaugh: The Euro’s Three Crises, Brookings Papers on Economic Activity, Spring 2012.
Benoît Coeuré, Outright Monetary Transactions, one year on, speech at the conference “The ECB and its OMT programme”, organised by Centre for Economic Policy Research, German Institute for Economic Research and KfW Bankengruppe, Berlin, 2 September 2013,
Martina Cecioni, Giuseppe Ferrero: Determinants of Target 2 Imbalances, Banca d’Italia, Questioni di Economia e Finanza (Occasional Papers), number 136, Sept. 2012, 

11. Growth and Economic Policies for and in the future (lecture 6)

  • The breakdown of EM growth model. Is China at risk of a financial crisis?
  • Summary of the “Fault Lines”, the hidden fractures that still threaten the world economy
  • Regulators and policy makers responses: how effective?
  • Business cycles: here to stay but for policymakers, regulators and monetary authorities to manage

*class presentation 6  (long version)

PART III   GDP and beyond (Marco Mira d'Ercole)

Most economic discussions, at both the national and international level, take GDP growth as the single overarching goal of all policies. This part of the course will discuss the foundation of this assumption, and highlight some of the practical implications that would follow from broadening the 'objective function' of policy makers to a broader range of factors. The quest for measures of well-being "beyond GDP" has become topical in many countries and circles, following the release of the Stiglitz-Sen-Fitoussi Report in 2009, and the course will describe some of the key issues that come to the fore when moving "beyond GDP".


 12.  General introduction  (lecture 1)

  1. Introduction and general goals
  2. Limits of GDP as a welfare metric
  3. The ‘economic problem’ and beyond
  4. How to understand well-being
  5. Why does well-being matter?

* class presentation
* DC

 Coyle D. (video 2015) , GDP: a brief but affectionate hystory


 13. Dimensions of individual well-being (lecture 2)

  1.  Traditional economist view of people’s well-being 
  2. Moving beyond the traditional view
  3. Universal dimensions of people’s well-being?
  4. Operationalisation through indicators: scoreboards, single summary measures
  5.  What matters the most to people?
  6.  Multidimensionality and policy making

     * class presentation
     * SSF
     * DC
     * BME
      OECD (2011), How's Life? Measuring Well-being, Chapter 1, OECD Publishing

14. Subjective well-being (lecture 3)


  1. Concept and dimensions
  2. Measurment issues
  3. Using subjective well-being to complement other measures
  4. Drivers of subjective well-being
  5. Objections: set points and cultural biases
  6. Policy uses

     * class presentation
     * SSF

     * OECD (2013), Guidelines on Measuring Subjective Well-Being, Paris



15. From individual well-being to social-welfare: the role of inequalities (lecture 4)


  1. Social welfare and  inequalities
  2. Inequalities in income: concepts and measures, within- and across-countries, the global distribution of income, realities and perceptions
  3. Other types of inequalities: wealth, health, skills; outcomes and opportunities
  4. The low-end of the distribution
  5. Drivers of income (and other) inequalities
  6. Inequalities and policy making

* class presentation    


* DC


A. Deaton (2013), The Great Escape, chapters 5 and 6, Princeton U. P



16.  Social welfare over time: sustainability (lecture 5)


  1. The 'capital stock' approach to sustainability
  2. Different types of capital: economic capital, human capital, social capital, natural capital
  3. Weak and strong sustainability
  4. Sustainability and policy making

* class presentation


* DC


UNECE (2014), Conference of European Statisticians Recommendations of Measuring Sustainable Development

W. Nordhaus (1999), "Sustainability and Economic Accounting", Annex A in William D. Nordhaus and Edward C. Kokkelenberg, Nature's Numbers: Expanding the National Economic Accounts to Include the Environment, National Research Council



17.  Using well-being metrics in national and international policies (lecture 6)

  1. Well-being indicators in the policy cycle
  2. National experiences
  3. International proceses: the UN sustaimnable Development Goals
  4. Wrapping up: what have we discussed in these lessons? 

* class presentation
* UNDP, Sustainable Development Goals

All lessons wrapping up


There will be a written exam at the end of the course

Sample Exam (last year)