IRGN 403: International Economics
Thomas Baranga
IR/PS
Spring 2015
1
International Linkages Between Economies
First 5 Weeks: Macroeconomic Linkages - Financial Flows
Determination of the exchange rate
Effects of the international on the domestic macroeconomy
The choice of exchange rate regime
Second 5 Weeks: Microeconomic Linkages - Physical Trade
Trade in Goods
Migration
Foreign Direct Investment
Trade Policy
Course Logistics
Textbook
International Economics, Feenstra and Taylor (3rd ed, 2014)
Ch 12 : Overview
Ch 13-15 : Exchange Rates
Ch 16-17 : International Financial Flows
Ch 18 : A Keynesian Macroeconomic Model
Ch 19-20 : Exchange Rate Policy
Assignments
24% 4 Problem Sets
35% Midterm Exam
35% Final Exam
6% Class Participation
Balance of Payments
National Income Accounting
International Borrowing and Debt
Interaction with domestic economy: IS-LM model
Government Policy
Monetary Policy
Fiscal Policy
Exchange Rate Policy
Central Role of Exchange Rates
Most Countries use their own National Currency
There are 192 member states in the United Nations
About 160 different currencies are in use
Most countries have their own currency
Some share a common currency: eg Euro, West African Franc
Some adopt another country’s currency: Ecuador uses US$
Exchange rate features in international transactions
If buyer and seller use different currencies, one side must transact in foreign currency
Price in domestic currency will depend on exchange rate
Exchange rates feature in most international transactions
5
What Determines the Exchange Rate?
Demand for foreign currency: financial assets
Arbitrage between domestic and foreign assets
Comparison of rates of return in different currencies
Demand for foreign currency: trade in goods
Goods market arbitrage: buy more foreign goods (and currency) when cheaper
Government Policy
Exchange rate regime
Capital controls
