ECON532-18B (HAM)

International Finance and Open Economy Macroeconomics

15 Points

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Waikato Management School
Te Raupapa
School of Accounting, Finance and Economics


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Paper Description

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The main focus of this paper is on the causes and consequences of exchange rate fluctuations in the context of international finance. The material covered includes the essentials of exchange rate theory and its relevance to key events in currency markets. The orientation of the paper is towards a greater understanding of floating exchange rate determination and fixed exchange rate crises, with emphasis given to macroeconomic and monetary experience.
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Paper Structure

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The teaching time will comprise lectures and class presentations. The lectures will feature discussion primarily based on international finance and exchange rate theory. They will also draw on case studies that demonstrate the testing of key hypotheses implied by theory. At the outset of the paper, it will be presumed that students already have a solid background knowledge of macroeconomics and quantitative skills. Before starting the paper, students are therefore advised to review the macroeconomics material from an introductory textbook such as Macroeconomics by Mankiw, as well as revise their quantitative studies. There will also be a series of short class presentations each based on key journal readings. Students will be expected to describe the nature of a chosen paper and offer some critical appraisal. Performance in the class presentations will contribute towards the overall grade on the paper. The list of presentation papers is given below.
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Learning Outcomes

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Students who successfully complete the course should be able to:

  • 1. Build and interpret models of exchange rate and international financial market behaviour.
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  • 2. Employ these models for the purpose of understanding the interaction between international finance with open economy macroeconomics.
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  • 3. Use these models to enhance the understanding of real world experience.
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  • 4. Critically appraise models of exchange rate and international financial market bahaviour.
    Linked to the following assessments:
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The assessment is based on two class tests to be sat during the teaching weeks, a class presentation made during the teaching weeks, plus an assignment to be submitted after the teaching weeks.
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Assessment Components

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The internal assessment/exam ratio (as stated in the University Calendar) is 100:0. There is no final exam. The final exam makes up 0% of the overall mark.

The internal assessment/exam ratio (as stated in the University Calendar) is 100:0 or 0:0, whichever is more favourable for the student. The final exam makes up either 0% or 0% of the overall mark.

Component DescriptionDue Date TimePercentage of overall markSubmission MethodCompulsory
1. Test 1
14 Aug 2018
9:00 AM
  • In Class: In Lecture
2. Test 2
2 Oct 2018
9:00 AM
  • In Class: In Lecture
3. Assignment
26 Oct 2018
5:00 PM
  • Online: Submit through Moodle
4. Class Presentations
  • In Class: In Lecture
Assessment Total:     100    
Failing to complete a compulsory assessment component of a paper will result in an IC grade
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Required and Recommended Readings

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Required Readings

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Waikato Reading List link

Copeland, L. (2014): Exchange Rates and International Finance, 6/e, Pearson.

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Recommended Readings

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Other textbooks

Carlin, W. and D. Soskice (2015): Macroeconomics, Instability, and the Financial System, Oxford University Press.

De Grauwe, P. (2014): Economics of Monetary Union, 10/e, Oxford University Press.

MacDonald, R. (2007): Exchange Rate Economics: Theories and Evidence, Routledge.

Mark, N. (2001): International Macroeconomics and Finance: Theory and Econometric Methods, Blackwell Publishing.

Masson, P. (2007): Lectures in International Finance, World Scienti fic Publishing.

Sarno, L. and M. Taylor (2002): The Economics of Exchange Rates, Cambridge University Press.

Journal articles

Agnor, P., (2003): "Benefits and Costs of International Financial Integration: Theory and Facts" World Economy, 26(8), 1089-1118.

Chinn, M. D., (2000): "The Usual Suspects? Productivity and Demand Shocks and Asia-Paci c Real Exchange Rates", Review of International Economics, 8(1), 20-43.

Dreher, A. and Walter, S. (2010): "Does the IMF Help or Hurt? The Eff ect of IMF Programs on the Likelihood and Outcome of Currency Crises," World Development, 38(1), 1-18.

Edwards, S., (1999): "How Effective are Capital Controls?," Journal of Economic Perspectives, 13(4), 65-84.

Engle, C. (2016): "Exchange Rates, Interest Rates, and the Risk Premium", American Economic Review, 106(2), 436–474.

Hale G. and M. Obstfeld (2014): "The Euro and The Geography of International Debt Flows", Working Paper No. 20033, NBER.

Holmes, M.J., (2002): "Does Long-Run Real Interest Parity Hold Among EU Countries? Some New Panel Data Evidence", Quarterly Review of Economics and Finance, 42, 733-46.

Holmes, M.J. and Maghrebi, N. (2008): “Is there a connection between monetary unification and real economic integration? Evidence from regime-switching stationarity tests”, Journal of International Money and Finance, 27(6), 958-970.

Holmes, M.J., Otero, J. and Panagiotidis, T. (2011): “The Term Structure of Interest Rates, the Expectations Hypothesis and International Financial Integration: Evidence from Asian Economies”, International Review of Economics and Finance, 20, 679-689.

Krugman, P. (2014): "Currency Regimes, Capital Flows, and Crises" IMF Economic Review.

MacDonald, R. (2002): "Modelling the Long–run Real Effective Exchange Rate of the New Zealand Dollar", Australian Economic Papers, 41(4), 519–537.

Reinhart, C. and Rogoff, K. (2011): "From Financial Crash to Debt Crisis," American Economic Review, 101, 1676-1706.

Rogoff, K., (2002): "Dornbusch's Overshooting Model after 25 Years," IMF Staff Papers, 49, 1-34.

Singh, T. (2016): "Rhetorics of saving–investment correlations and the international mobility of capital: A survey", The Journal of International Trade & Economic Development, DOI: 10.1080/09638199.2015.1118526

Taylor, A. and M. Taylor (2004): "The Purchasing Power Parity Debate", Journal of Economic Perspectives, 18(4), 135-158.

Additional references will be recommended as the paper proceeds.

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Other Resources

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Introductory material for this paper

Dixon, H. (2009): Introductory Mathematics for Economics MSc’s,

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Online Support

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All course materials are available through Moodle.
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This is a 500 level course, and the 15 points represents approximately 150 learning hours on the part of the students. This course runs over 13 weeks, students are expected to put in at least 12 hours per week of learning effort over the duration of the course.
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Prerequisite papers: ECON204 and at least 40 points at 300 level or above in Economics and/or Finance




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