Economics

School of Social Sciences

2024-2025

ECON20032   Macroeconomics 4

Semester 2

School of Social Sciences

Economics

Undergraduate Level 2

Lecture Time and Room: Wednesday 11am-1pm, Chemistry G.51

Examination Period: 12th May 2025 – 8th June 2025

Re-sit Period: 18th August 2025 – 31st August 2025

Aims

This one-semester course in international macroeconomics aims to provide students with the theoretical tools and empirical facts needed for understanding and thinking critically about macroeconomics, and macroeconomic policy, in an international context. At the end of the term students will have a better appreciation of some key international policy issues, including the fight against high inflation, often presented in policy-oriented publications and the popular press. This will be facilitated by the use of a new core theoretical framework, in which banks play a prominent role. Students should also be able to better understand how national policy challenges intersect with international economic issues – including financial integration and the global consequences of the COVID-19 pandemic.

Intended learning outcomes

Knowledge and Understanding:

At the end of this course students should be able to understand:

1.    Key concepts of national accounts in an open economy.

2.    The functioning of the foreign exchange market and the role of interest parity conditions in determining fluctuations in national currencies.

3.    How fiscal and monetary policies, and external shocks, affect macroeconomic aggregates – including output, prices, the current account, and the exchange rate – in an open economy where banks play a critical role in the financial system. Also, how policymakers should combine monetary and fiscal policies to bring inflation down.

4.     How the globalisation of banking affects the international transmission of financial shocks and the benefits of financial integration.

5.    The benefits of international coordination of macroeconomic policies in response to a negative global shock (such as COVID-19) in a simple two- country model of the world economy.

Intellectual skills: (i) problem-solving skills; (ii) skills of analysis, and the use of analytical models; (iii) the evaluation and critical analysis of arguments, theories and policies; (iv) understand and evaluate policy-oriented publications on international macroeconomic issues.

Practical skills: independently locate and assess relevant literature, and to draw on these to develop understanding and to construct arguments.

Transferable skills and personal qualities: (i) select and deploy relevant information; (ii) communicate ideas and arguments in writing; (iii) apply skills of analysis and interpretation; (iv) manage time and work to deadlines.

Syllabus (9 sessions)

The course will focus on the following topics:

Topic 1. National Accounts and the Balance of Payments. [1 session, SEM2W01]

Topic 2. Exchange Rates and the Foreign Exchange Market. [1 session, SEM2W02]

Topic 3. Macroeconomic Policies in an Open Economy: The FF-GG-XX model.

[5 sessions, SEM2W03, SEM2W04, SEM2W06, SEM2W07, SEM2W08]

Topic 4. COVID-19 and the International Coordination of Macroeconomic Policies.

[1 session, SEM2W9]

Topic 5. Financial Globalisation: Global Banking, Capital Flows, and Macro- Financial Stability. [1 session, SEM2W10]

Tutorials (5 sessions)

Tutorial 1. Fixed Exchange Rates: Summary Equations and Solution. [SEM2W06]

Tutorial 2. Fixed Exchange Rates: Policy and Exogenous Shocks. [SEM2W07]

Tutorial 3. Flexible Exchange Rates: Summary Equations and Solution. [SE2MW08]

Tutorial 4. Flexible Exchange Rates: Policy and Exogenous Shocks. [SEM2W09]

Tutorial 5. Policy Combinations to Fight High Inflation. [SEM2W10]

General References

Robert C. Feenstra, and Alan M. Taylor, International Macroeconomics, 5th  ed., Macmillan, 2021. Hereafter FT.

Pr. P.-R. Agénor, “The FF-GG-XX Model for Macroeconomic Policy Analysis in an Open Economy,” Technical Manual, University of Manchester.

General References, by Topic

Topic 1: FT Chapter 5.

Topic 2: FT Chapters 2 and 4.

Topic 3: TM (mandatory reading, except for Appendix).

Topic 4: FT Chapter 6.

Topic 5: Technical Note.