International
Finance Econ-641
Fall
2005, Wednesday 9.00-11.30, ICC 550
http://www.georgetown.edu/faculty/jhh9/econ641-2005.htm
Jonathan
Heathcote
202
687 5582
ICC
553
This course is not designed to be a
comprehensive survey of international macroeconomics. Rather I want to cover a
limited number of papers that address what I think are important open questions
in the field. We will also cover some useful numerical methods.
The open questions can be divided into
three broad areas:
How do we account for
huge cross-country differences in GDP per capita? What would happen if capital
and / or labor were allowed to move freely across countries? To
what extent is foreign direct investment a way to import higher foreign
productivity? How should tax rates on factors of production be set when
these factors are internationally mobile?
How much information
about the extent of international risk-sharing is contained in asset prices or
the cross-country correlation structure of macro-aggregates? Why is there so
little international diversification in asset holdings? How can we build models
that endogenize the extent of international
risk-sharing? How do policy choices / exchange rate regimes affect the degree
of international risk-sharing?
Can sticky prices help account
for these dynamics? Are the dynamics of international relative prices best
explained in terms of real frictions – e.g. shipping costs, distribution
costs, search frictions – or is there a role for nominal frictions
– sticky prices, internationally incomplete asset markets?
Books
and Articles
The most important
source for the class will be “Recursive
Macroeconomic Theory” 2nd Edition by Ljungqvist
and Sargent (LS), MIT Press 2004. You have probably
seen some of the material in this book before.
Other useful books are Marimon and Scott eds. Computational Methods for the
Study of Dynamic Economics, Oxford University Press 1999, Cooley ed. Frontiers
of Business Cycle Research, Princeton University Press 1995, Stokey and Lucas Recursive Methods In
Economic Dynamics, Harvard University Press 1989, and Farmer, The Macroeconomics of Self-Fulfilling
Prophecies, MIT Press 1993.
Weekly readings and homeworks will be posted on the class webpage, along with
supplementary notes / slides / computer codes for the some of the articles.
Requirements
Homeworks
(60%): I will hand out a series of homeworks. Most of
these homeworks will have a numerical (computer)
component. I expect you to complete
and turn in each homework by the announced date.
Exam (40%): There will
be an exam at a to-be-determined date.
In addition, you should
attend the Macro Seminar on Fridays.
Office
Hours
Email me to set up an
appointment.
Outline
Local Approximation Methods
Farmer’s 1993 book
Soderlind
1999: Solution and Estimation of RE Macro-models with Optimal Policy, EER 43
Klein 2000: Using the Generalized Schur Form to Solve a Multivariate Linear Rational
Expectations Model, JEDC 24/10
Schmitt-Grohe and
Uribe 2004: Solving dynamic
general equilibrium models using a second-order approximation to the policy
function, JEDC 28
International Mobility of Factors and
Technologies
Lucas 1990: Why Doesn’t Capital Flow
from Rich to Poor Countries?, AER 80/2.
Klein and Ventura 2005: Do
Migration Restrictions Matter?, mimeo
Burstein and Monge-Naranjo
2005: Aggregate
Consequences of Foreign Firms in Developing Economies, mimeo UCLA
Mendoza and Tesar
2005: Why
hasn’t tax competition triggered a race to the bottom? Some quantitative
lessons from the EU, JME
McGrattan
2005: Comment on
the above paper, JME forthcoming
Quadrini
2004 : Policy commitment and
the welfare gains from capital market liberalization, EER forthcoming
Cross-Country Risk Sharing
Business cycle models:
Stock and Watson 2005: Understanding
changes in international business cycle dynamics, JEEA
Backus, Kehoe and Kydland
chapter in Cooley 1995 book
Baxter and Crucini
1995: Business cycles and the asset structure of foreign trade, IER 36
Heathcote
and Perri 2002: Financial Autarky and International
Real Business Cycles, JME 49
Heathcote
and Perri 2004: Financial
Globalization and Real Regionalization, JET
Diversification:
Cole and Obstfeld
1991: Commodity trade and international risk sharing: How much do financial
markets matter?, JME 28
Heathcote
and Perri 2004: The
International Diversification Puzzle is Not as Bad as you Think, mimeo
Endogenous borrowing constraints:
Ljungqvist
and Sargent 2004 Chapters 19 and 20
Kocherlakota
1996: Implications of Efficient Risk Sharing without Commitment,
REStud 63/4
Alvarez and Jermann
2000 : Efficiency, Equilibrium and Asset Pricing with
Risk of Default, Econometrica 68/4
Kehoe and Perri 2002 : International Business
Cycles with Endogenous Market Incompleteness, Econometrica
70/3, also NBER Working Paper 7870
Arellano and Heathcote
2005: Rules, Discretion and International Risk-Sharing without Enforcement,
mimeo
Default:
Aguiar
and Gopinath 2004: Defaultable
Debt, Interest Rates and the Current Account
Aguiar
and Gopinath 2004: Emerging Markets
Business Cycles: The Cycle is the Trend
Arellano 2005: Default Risk, the Real
Exchange Rate, and Income Fluctuations in Emerging Economies
Exchange Rate Dynamics
Alessandria
2005: Consumer
Search, Price Dispersion, and International Relative Price Volatility
Atkeson
and Burstein 2005: Trade Costs,
Pricing to Market, and International Relative Prices mimeo UCLA
Burstein, Neves
and Rebelo 2003: Distribution Costs
and Real Exchange Rate Dynamics During
Exchange-Rate-Based Stabilizations, JME