Syllabus
An elective course in international finance for the Master in Finance, developing the macroeconomic framework needed to understand exchange rates, international capital flows, and monetary policy in open economies. The course studies how exchange rates are determined in asset and goods markets, how monetary and fiscal policy operate in an open economy, and how these mechanisms change across exchange-rate regimes.
The course moves from the foreign-exchange market and interest parity to monetary models of exchange-rate determination, purchasing power parity and long-run exchange rates, short-run open-economy equilibrium, and fixed exchange rates and central-bank intervention. A final module studies the current account and its sustainability.
Evaluation: take-home exam (30%); quizzes and problem sets (70%). The lowest quiz or problem-set score is dropped. Quizzes are individual; problem sets may be submitted in groups of up to three students. The take-home exam may be discussed in groups, but submissions are individual.
| # | Topic |
|---|---|
| 1 | Introduction: international finance, macroeconomic data, national income accounting, and the balance of payments |
| 2 | Exchange rates and the foreign-exchange market |
| 3 | Money, interest rates, and exchange rates |
| 4 | Price levels and the exchange rate in the long run |
| 5 | Output and the exchange rate in the short run |
| 6 | Fixed exchange rates and foreign-exchange intervention |
| 7 | Current account theory and sustainability |
Course materials
Lecture slides, handout format (PDF).
Introductory Class — course overview and an introduction to international finance, including the main questions studied in the field and macroeconomic data on economic activity, prices, exchange rates, interest rates, national income accounting, and the balance of payments. PDF
Exchange Rates and the Foreign Exchange Market — exchange-rate quotations and international transactions, the structure of the foreign-exchange market, returns on foreign-currency assets, and equilibrium in the foreign-exchange market, with particular emphasis on uncovered interest parity and its assumptions. PDF
Money, Interest Rates, and Exchange Rates — money supply and demand, money-market equilibrium, monetary policy, and the interaction between money and exchange rates in the short and long run, including inflation and exchange-rate dynamics. PDF
Long-Run Determinants of the Exchange Rate — the law of one price, purchasing power parity, the monetary approach to exchange-rate determination, real exchange rates, international interest-rate differences, and real interest parity. The lecture also examines the empirical limitations of PPP and the role of relative demand and supply in long-run exchange-rate movements. PDF
Output and the Exchange Rate in the Short Run — aggregate demand in an open economy and the DD–AA framework for joint equilibrium in output and asset markets. The model is used to study temporary and permanent monetary and fiscal policy changes, their effects on output and exchange rates, and their relationship with the current account. PDF
Fixed Exchange Rates and Foreign Exchange Intervention — central-bank balance sheets, international reserves, foreign-exchange intervention and sterilization, the mechanics of maintaining a fixed exchange rate, stabilization policy under fixed rates, balance-of-payments crises, capital flight, and managed floating. PDF
Current Account Theory and Sustainability — materials to be added.
Course references
Books
The lecture material follows the standard international-finance framework developed in the course slides. A complete reading list and references will be added here together with the remaining course material.