Master
2019/2020
Advanced Macroeconomics
Category 'Best Course for Broadening Horizons and Diversity of Knowledge and Skills'
Type:
Compulsory course (Finance)
Area of studies:
Finance and Credit
Delivered by:
School of Economics and Finance
When:
1 year, 1, 2 module
Mode of studies:
offline
Master’s programme:
Finance
Language:
English
ECTS credits:
5
Contact hours:
60
Course Syllabus
Abstract
This course will explain students the essential concepts of open macroeconomics, economic growth, consumption, and investments. The goals of the course are for students to know what factors influence the dynamics of the relationship between the national economy and the rest of the world, and to know the mechanisms of economic growth. The course covers a broad range of topics in monetary and fiscal policy.
Learning Objectives
- Upon successful completion of the course, the student should be able to demonstrate understanding the determinants of the exchange rate and interest rates, and factors of the economic growth.
- Students will obtain better understanding regarding relationship between the dynamics of macroeconomic indicator and the dynamics of financial markets, effects of economic policy on financial markets sustainability, and changing in asset prices.
Expected Learning Outcomes
- Knowledge of such characteristics of an open economy as the balance of payments principles and determinants of the exchange rate.
- Knowledge of what factors influence changes in the exchange rate.
- Knowledge of the determinants and dynamics of economic growth.
Course Contents
- The principles of an open economy1. The Openness in an Economy. The dimensions of openness. National income accounts identity in an open economy. International capital flows and the trade balance. The balance of payments accounts 2. Exchange Rates. Nominal, real, and effective exchange rates. International parity conditions: absolute and relative purchasing power parity, the Balassa-Samuelson effect; interest rate parities. Exchange rate regimes.
- Exchange rate determination3. Exchange rates in the short run: the Mundell-Fleming model. The balance of payments equilibrium: the BP curve. Determining aggregate demand in an open economy: the IS-LM-BP model. The effects of macroeconomics policies on aggregate demand under floating and fixed exchange rate regimes in an economy with perfect capital mobility. 4. The Flexible Price Monetary Model. Demand for money in two countries and foreign exchange rate determination. Expectation and fundamentals: a forward looking monetary model of the exchange rate. Rational bubbles. The dynamics of rational bubbles. 5. The Sticky Price Model (the Dornbush model). The building blocks of the model: uncovered interest parity, the demand for money equation, and the price adjustment process. The curves of the goods market equilibrium and the money market equilibrium. The adjustment process to the equilibrium state. Overshooting of the exchange rate. 6. The Portfolio Balance Model. Equilibrium of the money market, domestic bond market, and foreign bond markets. General equilibrium. Central bank balance sheet. Effects of monetary policy under the portfolio balance approach: open market operations, non-sterilized foreign exchange operations, and sterilized foreign exchange operations. Effects of changing economic environments and risk perceptions. Adjustment of the interest rate and the exchange rate and the current account.
- Economic growth7. Solow model and differences in economic growth rates. The evolution of the per capita income distribution among countries of the world. The presence of convergence as a key feature of the neoclassical model of growth. The conclusions of the Solow model regarding the causes of differences in countries' economic growth rates and predictions about future levels of well-being. The effect of conditional convergence in the Solow model and the advantages of catching-up development. Convergence to the balanced growth path. 8. Theory of convergence. Conditional beta- and sigma-convergence in space. Empirical verification of the presence / absence of convergence in inter-country and inter-regional data. Criticism of unconditional / conditional convergence models. Regression associated with convergence. The need to take into account the neighborhood effects in the analysis of convergence. 9. The rate of convergence: spatial analysis. Introduction to spatial econometrics. Weight matrices and their use in spatial econometric models. Identification of spatial heterogeneity of the studied indicators using the Moran and Geary indices. Moran scatterplot. Spatial econometrics methods application to beta- and sigma-convergence models of the main macroeconomic indicators.
Interim Assessment
- Interim assessment (2 module)0.15 * Classroom activities + 0.15 * Control 1 + 0.15 * Control 2 + 0.4 * Exam + 0.15 * Self-study
Bibliography
Recommended Core Bibliography
- Alfonso Novales, Esther Fernández, & Jesús Ruiz. (2014). Economic Growth. Springer. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.spr.sptbec.978.3.642.54950.2
- Terra, C. (2015). Principles of International Finance and Open Economy Macroeconomics. Elsevier. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.eee.monogr.9780128022979
Recommended Additional Bibliography
- Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy, 84(6), 1161–1176. https://doi.org/10.1086/260506
- Elhorst, J. P. (DE-588)171025091, (DE-576)131852809. (2014). Spatial econometrics : from cross-sectional data to spatial panels / J. Paul Elhorst. Heidelberg [u.a.]: Springer. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edswao&AN=edswao.396630170
- Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A Contribution to the Empirics of Economic Growth. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.5A71ECD9