This is a course on international finance and open economy macroeconomics, conducted against a background of global macroeconomic developments confronting emerging markets and developing countries, with examples given mainly from Asia-Pacific economies. The first part of the course builds on the open economy IS-LM framework (the Mundell-Fleming model) studied in the Graduate Diploma course IDEC 8002. It develops the monetary approach to balance of payments, and deals specifically with the money supply process in developing countries (the McKinnnon model). Part one of this course also covers analyses of short-term international capital flows (the Portfolio Balance model), of exchange rate volatility (the Dornbusch model) and discusses the choice of exchange rate regimes and the management of short-term capital flows for developing countries. Part one concludes with a discussion of the "traditional" IMF adjustment policies for countries in balance of payments difficulties.

The second part of this course concentrates on the role of the financial sector in economic development (the McKinnon thesis), and what can go wrong when integrating the domestic financial sector into the global capital market (the order of economic liberalization and financial crises in emerging market economies). This part also covers some of the post-crisis financial arrangements in Asia, and concludes with a discussion of the integration of the Mekong transitional economies with the Asian and the world economy.

Essay (25%) and seminar presentation (5%)                              30%    

Mid-term exam (redemptive)                                                    20%

Final exam                                                                              50%

"International Money and Finance" by C. Paul Hallwood and Ronald MacDonald, third edition 2000, Blackwell  (H&M 2000).

"The Order of Economic Liberalisation: Financial Control in the Transition to a Market Economy" by Ronald McKinnon, second edition 1993, Johns Hopkins (McK1993.)

"Toward a New International Financial Architecture - a practical post Asia agenda", by B. Eichengreen, Institute for International Economics, 1999.

General References:

"Money and Capital in Economic Development" by Ronald McKinnon, Brookings, 1973.

"International Finance and Open Economy Macroeconomics" by F. and L. Rivera-Batiz, MacMillan, Second Edition, 1994. (R-B)

World Bank "World Development Report", 1984 to 2005 (inclusive). (WDR)

International Monetary Fund: "Global Financial Stability Reports", 2004 and 2005.

McLeod R. and Garnaut R. (ed) (1998): "East Asia in Crisis", Routledge.

Leung S. (ed) (1999): "Vietnam and the East Asian Crisis", Edward Elgar, U.K.

Glick R., Moreno R. and Spiegel M. (ed) (2001): "Financial Crises in Emerging Markets", Cambridge U.P.

Gill, I.S and Homi Kharas (ed)(2007): "An East Asian Renaissance: Ideas for Economic Growth", The World Bank, Washington DC.

Topics

. Open Economy IS-LM Analysis under flexible exchange rates
. Balance of payments adjustments, exchange rate regimes, international capital flows
. Inflation and unemployment in an open economy
. Money and finance in economic development
. Financial crises in emerging market economies
. Financial arrangements and integration in post-crisis Asia

Past Exam Paper

2006 Exam