Current courses

Winter term 2021/22

Financial Economics II

Univ.-Prof. Dr. Philip Sauré

Shortname: Fin Economics II
Course No.: 03.897.1220

Requirements / organisational issues

Syllabus for lecture: Financial Economics II – Global Imbalances and External Adjustment

Winter term 2021/22

Lecture:            Prof. Dr. Philip Sauré

Location: 00 211 HS I (Time: Monday, 8:30-10:00am)

Tutorial:           Leandro Navarro

Location: 00 251 HS V (Time: Wednesday, 8:30-10:00am)

This course analyzes the determinants of global imbalances and the process of external adjustments. Global imbalances – the amount countries indebt themselves vis-à-vis the rest of the world – serve as an indicator of risk and stability of the global financial system. The course reviews the factors that drive global imbalances for individual countries and the world economy as a whole. It distinguishes natural levels of borrowing on international markets from excessive borrowing and analyzes related risks and potential inefficiencies, resulting from debt crises or currency attacks. The course further assesses the consequences of external adjustment, i.e., the reduction of global imbalances, in particular the welfare costs due to external debt services but also due to adverse exchange rate movements. Methodologically, the course gives a tight connection of recent empirical findings and the literature’s main insights derived from theoretical modelling.

The course is not the continuation of Financial Economics I and no formal prerequisites exist. Theories based on modern micro-founded modelling and standard econometric techniques will be employed.

 

Contents

Main Course Material

Gopinath, Gita, Elhanan Helpman, and Kenneth Rogoff, eds. Handbook of international economics. Vol. 4. Elsevier, 2014.

Harms, Philipp (2016): International Macroeconomics, 2nd edition, Tübingen (Mohr Siebeck).

Lecture slides and problems sets will be made available for registered students through JGU-LMS  (https://lms.uni-mainz.de/moodle/my/ ).

Course Chapters

I.       International borrowing and lending – basic concepts and stylized facts

Keywords: Balance of Payments (BOP), Current Account (CA), International Investment Position (IIP)

Readings:

Harms, Chapter 2

Optional readings

Chinn, M.D., Prasad, E.S., 2003. Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration. Journal of International Economics 59 (1), 47–76.

Gourinchas, P. O., & Rey, H. 2014. External adjustment, global imbalances, valuation effects, Chapter 10. In Handbook of International Economics

 

II.      Determinants of Global Imbalances

Keywords: intertemporal optimization, consumption smoothing, distortions, sudden stops, speculative attacks

Readings:

Harms, Chapter X

Gourinchas, P. O., & Rey, H. 2014. External adjustment, global imbalances, valuation effects, Chapter 10. In Handbook of International Economics

Krugman, P. (1979) "A model of balance-of-payments crises." Journal of money, credit and banking 11.3 (1979): 311-325.

Calvo, G. 1998: Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops, Journal of Applied Economics

Optional readings

Blanchard, O. and G. Milesi-Feretti 2012: (Why) Should Current Account Balances Be Reduced? IMF Economic Review

Bernanke, Ben. 2005. The global saving glut and the US current account deficit. No. 77. Board of Governors of the Federal Reserve System (US)

Gourinchas, P.O., Rey, H., 2007. From world banker to world venture capitalist: US external adjustment and the exorbitant privilege G7 Current Account Imbalances: Sustainability and Adjustment. University of Chicago Press, 11–66.

Rothenberg, A. D., and F. E. Warnock. 2011. "Sudden flight and true sudden stops." Review of International Economics

 

III.    Measurement Issues

Keywords: rate of return, exorbitant privilege, dark matter, inflation, retained earnings, tax evasion

Optional readings

Hausmann, R., & Sturzenegger, F. 2007. The missing dark matter in the wealth of nations and its implications for global imbalances. Economic policy

Fischer, A., Groeger, H., Sauré, P., and Yesin, P. 2018. Current account adjustment and retained earnings. Journal of International Money and Finance

Zucman, Gabriel. 2013 "The missing wealth of nations. 2013: Are Europe and the US net debtors or net creditors?" Quarterly Journal of Economics

Curcuru, S. E., Dvorak, T., and Warnock, F. E. 2008. Cross-border returns differentials. Quarterly Journal of Economics, 123(4), 1495-1530.

 

IV.    External Adjustment – Empirics and Theory

Keywords: (empirics) channels of adjustment, trade balance, nominal exchange rate, real exchange rate, panel estimations, (theory) wage, real wage, real exchange rate, varieties, Home Market Effect, transfer effect, secondary burden.

Readings:

Lane, Philip R., and Gian Maria Milesi-Ferretti. "External adjustment and the global crisis." Journal of International Economics 88.2 (2012): 252-265.

Dekle, Robert, Jonathan Eaton, and Samuel Kortum. 2007 "Unbalanced trade." American Economic Review 97.2: 351-355.

Corsetti, Giancarlo, Philippe Martin, and Paolo Pesenti. "Varieties and the transfer problem." Journal of International Economics 89.1 (2013): 1-12.

Optional readings

Phillips, Steven, et al. 2013 "The external balance assessment (EBA) methodology."

Lee, Mr Jaewoo, et al. 2008 Exchange rate assessments: CGER methodologies. No. 261. International Monetary Fund

Gourinchas, P.-O. and H. Rey 2007. "International financial adjustment." Journal of Political Economy

Dekle, Robert, Jonathan Eaton, and Samuel Kortum. 2008 "Global rebalancing with gravity: measuring the burden of adjustment." IMF Staff Papers 55.3: 511-540.

Chinn, M. D., & Wei, S. J. 2013. A faith-based initiative meets the evidence: does a flexible exchange rate regime really facilitate current account adjustment?. Review of Economics and Statistics

Obstfeld, M., Rogoff, K., 2005. Global current account imbalances and exchange rate adjustments. Brookings Papers on Economic Activity 1, 67–123.

 

V.     Exchange Rates Pass-Through

Keywords: J-Curve, ERPT, Nominal Exchange Rate, Price Rigidities, Invoicing currency

Readings

Burstein, A., and Gopinath, G. 2014. International prices and exchange rates. In Handbook of International Economics

Optional readings

Atkeson, A., & Burstein, A. 2008. Pricing-to-market, trade costs, and international relative prices. American Economic Review

Corsetti, G., and Dedola, L. 2005. A macroeconomic model of international price discrimination. Journal of International Economics, 67(1), 129-155.

Gopinath, G., Itskhoki, O., and Rigobon, R. 2010. Currency choice and exchange rate pass-through. American Economic Review

Auer, Raphael A. and Philip Sauré 2017. "Dynamic entry in vertically differentiated markets." Journal of Economic Theory

Auer, R. A., and Schoenle, R. S. 2016. Market structure and exchange rate pass-through. Journal of International Economics

Devereux, M. B., Dong, W., and Tomlin, B. 2017. Importers and exporters in exchange rate pass-through and currency invoicing. Journal of International Economics

Bonadio, B., Fischer, A. M., & Sauré, P. U. 2016. The speed of exchange rate pass-through. Journal of the European Economic Association, forthcoming

Goldberg, L. S., and Campa, J. M. (2010). The sensitivity of the CPI to exchange rates: Distribution margins, imported inputs, and trade exposure. Review of Economics and Statistics

Amiti, M., Itskhoki, O., and Konings, J. 2014. Importers, exporters, and exchange rate disconnect. American Economic Review

 

Dates:

Date (Day of the week)TimeLocation
10/25/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
10/27/2021 (Wednesday)08.30 to 10.0000 251 HS V
1121 - Haus Recht und Wirtschaft II
11/08/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
11/15/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
11/22/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
11/29/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
12/06/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
12/13/2021 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
01/03/2022 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
01/10/2022 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
01/17/2022 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
01/24/2022 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II
01/31/2022 (Monday)08.30 to 10.0000 211 HS I
1121 - Haus Recht und Wirtschaft II

Semester: WiSe 2021/22