Outline

Overview

This unit studies macroeconomic theory and policy in a global trading world. The microfoundations of the various sectors are examined in the context of an open economy. The evolution of international money and capital markets is described, the operation of the foreign exchange market is examined, showing how its microstructure affects its macro performance. Theories and tests of the efficiency of international capital markets are surveyed, as well as core theories and tests of exchange rate and asset price determination. The unit develops the macroeconomic implications of monetary and fiscal policies for small and large open economies for different regimes.

Unit details and rules

Unit code	ECOS3007
Academic unit	Economics
Credit points	6
Prohibitions ?	None
Prerequisites ?	ECOS2002 or ECOS2902 or ECOS2040
Corequisites ?	None
Assumed knowledge ?	None
Available to study abroad and exchange students	Yes

Teaching staff

Coordinator	Graham White, g.white@sydney.edu.au

Type	Description	Weight	Due	Length
Final exam	Final exam n/a	60%	Formal exam period	2 hours
Outcomes assessed:
In-semester test	Mid-semester exam # 1 Multiple choice	20%	Week 07 Due date: 08 Apr 2020 at 18:00	1 hour
Outcomes assessed:
In-semester test	Mid-semester exam # 2 Essay	20%	Week 10 Due date: 06 May 2020 at 18:00 Closing date: 06 May 2020	1 hour
Outcomes assessed:

Assessment summary

Detailed information for each assessment can be found in the Canvas site for this unit.

Assessment criteria

The University awards common result grades, set out in the Coursework Policy 2014 (Schedule 1).

As a general guide, a High distinction indicates work of an exceptional standard, a Distinction a very high standard, a credit a good standard, and a pass an acceptable standard.

Result name	Mark range	Description
High distinction	85 - 100
Distinction	75 - 84
Credit	65 - 74
Pass	50 - 64
Fail	0 - 49	When you don’t meet the learning outcomes of the unit to a satisfactory standard.

For more information see sydney.edu.au/students/guide-to-grades

For more information see guide to grades.

Late submission

In accordance with University policy, these penalties apply when written work is submitted after 11:59pm on the due date:

Deduction of 5% of the maximum mark for each calendar day after the due date.
After ten calendar days late, a mark of zero will be awarded.

Academic integrity

The Current Student website provides information on academic integrity and the resources available to all students. The University expects students and staff to act ethically and honestly and will treat all allegations of academic integrity breaches seriously.

We use similarity detection software to detect potential instances of plagiarism or other forms of academic integrity breach. If such matches indicate evidence of plagiarism or other forms of academic integrity breaches, your teacher is required to report your work for further investigation.

You may only use artificial intelligence and writing assistance tools in assessment tasks if you are permitted to by your unit coordinator, and if you do use them, you must also acknowledge this in your work, either in a footnote or an acknowledgement section.

Studiosity is permitted for postgraduate units unless otherwise indicated by the unit coordinator. The use of this service must be acknowledged in your submission.

Learning support

Simple extensions

If you encounter a problem submitting your work on time, you may be able to apply for an extension of five calendar days through a simple extension.  The application process will be different depending on the type of assessment and extensions cannot be granted for some assessment types like exams.

Special consideration

If exceptional circumstances mean you can’t complete an assessment, you need consideration for a longer period of time, or if you have essential commitments which impact your performance in an assessment, you may be eligible for special consideration or special arrangements.

Special consideration applications will not be affected by a simple extension application.

Using AI responsibly

Co-created with students, AI in Education includes lots of helpful examples of how students use generative AI tools to support their learning. It explains how generative AI works, the different tools available and how to use them responsibly and productively.

Weekly schedule

WK	Topic	Learning activity	Learning outcomes
Weekly	Please see the reading list for all lecture topics	Lecture and tutorial (3 hr)

Attendance and class requirements

Attendance: students are expected to attend 90% of their classes. If you attend less than 50% of classes, regardless of the reasons, you may be referred to the Examiner’s Board which will decide whether you should pass or fail the unit of study if your attendance falls below this threshold.
Lecture recording: Most lectures (in recording-equipped venues) will be recorded and may be made available to students on the LMS. However, you should not rely on lecture recording to substitute your classroom learning experience.
Preparation: students should commit to spend approximately three hours’ preparation time (reading, studying, homework, essays, etc.) for every hour of scheduled instruction.

PLEASE NOTE: Your grade in this course will be based on your understanding of lecture material and that understanding requires 100% commitment to attendance at lectures as well as doing the required reading. THERE IS NO VIABLE SUBSTITUTE – INCLUDING RELIANCE ON LECTURE RECORDINGS - FOR REGULAR ATTENDANCE AT LECTURES

Progressively working through the Practice Questions (provided on Canvas) is also critical to understanding lecture material. These practice questions bear directly on the key points discussed in lectures. To this end the third hour of each lecture timeslot is devoted to Question and Answer and in the process going through practice questions.

PLEASE NOTE: ANSWERS TO PRACTICE QUESTIONS ARE NOT PROVIDED ON CANVAS. IT IS YOUR RESPONSIBILITY TO ATTEND THE
Q & A SESSIONS IN EACH LECTURE TIMESLOT WHERE THESE QUESTIONS ARE ADDRESSED.

Copies of the Powerpoint slides used in lectures should not be seen as a substitute for lecture notes. They contain diagrams and algebra used in lectures as well as a fairly cryptic listing of key points. Please bear in mind that students will be examined on their understanding of the material covered in the course and not on their ability to memorise bits and pieces of Powerpoint slides.

Study commitment

Typically, there is a minimum expectation of 1.5-2 hours of student effort per week per credit point for units of study offered over a full semester. For a 6 credit point unit, this equates to roughly 120-150 hours of student effort in total.

Required readings

LECTURE TOPICS

1. Balance of payments and foreign exchange markets: some basic concepts and propositions

The balance of payments: basic structure and economic significance
Exchange rates
Uncovered and covered interest rate parity
Purchasing power parity

References:

International Monetary Fund (2009), Balance of Payments and International Investment Position Manual, Sixth Ed., Washington D.C., Ch. 2, pp. 9-11, 14; Ch. 6 pp. 100-101, 110-12. (e-reserve)

Krugman, P. R., Obstfeld M. and Melitz. M. J.(2012), International economics : theory & policy, (Ninth ed., Global ed), Pearson: London, pp. 336-46. (e-reserve)

Alper C. E. and Ardic O. P. (2008), “Covered interest parity”, in Steven N. Durlauf S. N. and Blume L. E. (eds), The New Palgrave Dictionary of Economics, (Second Edition) (hereafter NP). (e-reserve)

Isard P. (2008), “Uncovered interest parity”, NP. (e-reserve)

Sarno L. (2008), “Purchasing power parity”, NP. (e-reserve)

2. Open-economy macroeconomics I : recap and extension

The IS/LM/BP (Mundell-Fleming) model with rate-setting monetary policy and fixed prices
Perfect and imperfect international capital mobility
Foreign interest rate and demand shocks in the IS/LM/BP model
Monetary and fiscal policies under perfect and imperfect capital mobility; fixed and flexible exchange rates
The “impossible trinity” and monetary policy independence

References:

Blanchard O. and Sheen J. (2013), Macroeconomics: Australian Edition, Pearson Australia: Frenchs Forest, N.S.W., 4th Edition, pp.116-117. (e-reserve)

Husted S.and Melvin M. (2013), International Economics, Ninth Edition, Pearson: New Jersey, pp. 342-50. (e-reserve)

Aspromourgos T. (1999), “Open-economy IS-LM – with monetary policy conducted via an interest rate instrument”, Economic Papers, Vol.18, No.1, March. (e-reserve)

Serrano F and Summa R. (2015), "Mundell-Fleming without the LM curve: the exogenous interest rate in an open economy", Review of Keynesian Economics, Vol. 3, No. 2, pp. 248-68.

3. Open-economy macroeconomics II: exchange rate dynamics

Flexible prices and traditional orthodox open-economy macroeconomics: exchange rates governed by money supplies – the monetary model
Dynamics of the real exchange rate: the equilibrium model
Dynamics of the real exchange rate: a non-orthodox alternative

References:

Taylor M. (1995), “Economics of exchange rates”, Journal of Economic Literature, Vol. 33, No.1, March, pp.21-26. (e-reserve)

Baillie R. T. (2008), “Nominal exchange rates”, NP. (e-reserve)

Martinez-Hernandez F.A.(2017), “The Political Economy of Real Exchange Rate Behaviour: Theory and Empirical Evidence for Developed and Developing Countries, 1960-2010”, Review of Political Economy, (published on-line, Nov. 2017). (e-reserve)

4. Some dissent: the “balance of payments-constrained growth” thesis

A demand-constrained view of economic growth
The balance of payments-constrained growth rate: a simple case
Balance of payments-constrained growth and the interdependence of growth rates
The balance of payments-constrained growth rate: balance of payments equilibrium in terms of a sustainable external debt trajectory

References:

Thirlwall A.P. (1979), “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences”, Banca Nazionale de Lavoro Quarterly Review, Vol. 32, pp. 45-53. (e‑reserve)

McCombie J.S.L. and Roberts M. (2002), “The role of the balance of payments in economic growth”, in Setterfield M. (ed), The Economics of Demand-led Growth: Challenging the Supply-Side Vision of the Long Run, Edward Elgar: London. (e-reserve)

Barbosa Filho N. (2002), “The Balance-of-payments Constraint: From Balanced Trade to Sustainable Debt”, Center for Economic Policy Analysis (CEPA) Working Paper, January, New School University, New York, NY. (e-reserve)

5. Historical development of the international monetary system I: the gold standard

Limits on exchange rate movements under the gold standard
Adjustment mechanisms under the gold standard: capital flows versus gold flows
Breakdown of the gold-standard: supply of gold or the declining dominance
of the UK?

References:

Argy V. (1981), The Postwar International Money Crisis: An Analysis, London: Allen and Unwin, Ch. 1. (e-reserve)

McKinnon R.I. (1993), "The rules of the game: international money in historical perspective”, Journal of Economic Literature, Vol.31, No.1, March, pp.1-11. (e-reserve)

Serrano F. (2003), “From Static Gold to the Floating Dollar”, Contributions to Political Economy, Vol. 22, pp. 87-94. (e-reserve)

Two useful short background pieces for this and the next topic are:

De Grauwe P. (1987), “International monetary policy”, in The New Palgrave: A Dictionary of Economics, First Edition. London: Macmillan (hereafter NP1), Vol. II, pp. 920-922. (e-reserve)

Black S.W. (1987), “International monetary institutions”, in NP1, Vol. II, pp.917-920. (e-reserve)

6. Historical development of the international monetary system II: Bretton Woods or the “Gold-Dollar Standard”

Intentions in the design of the Bretton Woods system
A buffer-stock adjustment to balance of payments difficulties
The US versus other countries: two sets of rules
Breakdown of the Bretton Woods system: the “Triffin dilemma” or the US shedding its constraints

References:

Bordo M.D. (1992), “The Bretton Woods International Monetary System: An Historical Overview”, NBER Working Paper, No. 4033, Section 3, pp. 14-21; sections 4 and 5.

Serrano (2003), op.cit. pp. 94-98.

Serrano F. (2006), “Power Relations and American Macroeconomic Policy, from Bretton Woods to the Floating Dollar Standard”, mimeo, pp. 1-18. (e-reserve)

McKinnon R.I. (1993), op.cit., pp.11-26.

Argy V. (1981), op.cit., Ch.’s, 2-6 (book available in Special reserve)

7. Critical issues for the international monetary system I: fixed versus floating exchange rates and the optimal domain of currencies

The exchange rate as a policy tool: the seminal analysis of Mundell and McKinnon
Monetary (or currency) unions: pre-conditions
The European Monetary Union as a case study

References:

Mundell R.A. (1961), “A theory of optimal currency areas”, American Economic Review, Vol.51, No.4, September, pp.657-665. (e‑reserve)

McKinnon R.J. (1963), “Optimal currency areas”, American Economic Review, Vol.53, No.4, September, pp.717-725. (e‑reserve)

Cesarano F. (2006), “The equilibrium approach to optimal currency areas”, Banca Nazionale del Lavoro Quarterly Review, Vol. 59, June, pp.193 – 209.

Pivetti M. (2013), “On the Gloomy European Project”, Contributions to Political Economy, Vol. 32, pp. 1 – 10.

De Vivo G. and Barba A. (2013), “Flawed Currency Areas and Viable Currency Areas: External Imbalances and Public Finance in the Time of the Euro”, Contributions to Political Economy, Vol. 32, pp. 73-95.

Cesaratto S. (2015), “Balance of Payments or Monetary Sovereignty: In Search of the EMU’s Original Sin”, International Journal of Political Economy, Vol. 44, No.2, pp.142-56.

Lavoie M. (2015), “The Eurozone Crisis: A Balance-of-Payments Problem or a Crisis Due to a Flawed Monetary Design?”, International Journal of Political Economy, Vol. 44, No.2, pp.157-60.

Rossi S. (2016), “The Euro Must Be Abandoned to Achieve European Monetary Integration”, International Journal of Political Economy, Vol. 45, No.1, pp. 72-84.

8. Critical issues for the international monetary system II: the world economy, global imbalances and the reserve currency

The reserve currency: the path of the $US and the US current account
Interpretations of the relationship between the US and EDC’s: the Bretton Woods II hypothesis
The phenomenon of self-insurance and the EDC’s
Global imbalances, growth strategies and the GFC
Post-GFC and the BRICs
The reserve currency again; part of the solution or part of the problem? Keynes and the clearing union revisited

References:

Hall S. G. and Tavlas G.S.(2013), “The debate about the revived Bretton-Woods regime: a survey and extension of the literature”, Journal of Economic Surveys, Vol. 27, No. 2, pp.340-63.

Bibow J. (2008), “Insuring against private capital flows: Is it worth the premium? What are the alternatives?”, The Levy Economics Institute of Bard College Working Papers, No. 553, December. (e‑reserve)

Palley T.I. (2011), “The rise and fall of export-led growth”, The Levy Economics Institute of Bard College Working Paper, No. 675, July. (e‑reserve)

Palley T. I. (2015),"The theory of global imbalances: mainstream economics vs structural Keynesianism", Review of Keynesian Economics, Vol. 3, No. 1, pp.45-62.

Nassif A., Carmem F. and Araujo E. (2016), “The BRIC’s Economic Growth Performance Before and After the International Financial Crisis”, International Journal of Political Economy, Vol. 45, No. 4, pp.294-314.

Siddiqui K. (2016), “Will the Growth of the BRICs Cause a Shift in the Global Balance of Economic Power in the 21st Century?”, International Journal of Political Economy, Vol. 45, No. 4, pp.315-338.

Kregel J. (2010), “An alternative perspective on global imbalances and international reserve currencies”, The Levy Economics Institute of Bard College Public Policy Brief, No. 116.

Kregel J. (2015), “Emerging market economies and the Reform of the International Financial Arhcitecture: Back to the Future”, The Levy Economics Institute of Bard College Public Policy Brief, No. 139.

De Cecco M. (2012), “Global Imbalances: Past, Present and Future”, Contributions to Political Economy, Vol. 31, pp. 29-50.

Faudot A. (2018), "The US dollar and its payments system: architecture and political implications", Review of Keynesian Economics, Vol. 6, No.1, pp.83-95.

Learning outcomes

Learning outcomes are what students know, understand and are able to do on completion of a unit of study. They are aligned with the University's graduate qualities and are assessed as part of the curriculum.

Outcomes
Graduate qualities

At the completion of this unit, you should be able to:

LO1. demonstrate openness to new ways of thinking and appreciate the importance of intellectual curiosity and reflection as the foundation for continuous learning
LO2. demonstrate a capacity to work independently
LO3. critically evaluate underlying theories, concepts, assumptions, limitations and arguments in economics
LO4. develop coherent arguments when recommending solutions and critically evaluating theories in economics.

Graduate qualities

The graduate qualities are the qualities and skills that all University of Sydney graduates must demonstrate on successful completion of an award course. As a future Sydney graduate, the set of qualities have been designed to equip you for the contemporary world.

GQ1	Depth of disciplinary expertise Deep disciplinary expertise is the ability to integrate and rigorously apply knowledge, understanding and skills of a recognised discipline defined by scholarly activity, as well as familiarity with evolving practice of the discipline.
GQ2	Critical thinking and problem solving Critical thinking and problem solving are the questioning of ideas, evidence and assumptions in order to propose and evaluate hypotheses or alternative arguments before formulating a conclusion or a solution to an identified problem.
GQ3	Oral and written communication Effective communication, in both oral and written form, is the clear exchange of meaning in a manner that is appropriate to audience and context.
GQ4	Information and digital literacy Information and digital literacy is the ability to locate, interpret, evaluate, manage, adapt, integrate, create and convey information using appropriate resources, tools and strategies.
GQ5	Inventiveness Generating novel ideas and solutions.
GQ6	Cultural competence Cultural Competence is the ability to actively, ethically, respectfully, and successfully engage across and between cultures. In the Australian context, this includes and celebrates Aboriginal and Torres Strait Islander cultures, knowledge systems, and a mature understanding of contemporary issues.
GQ7	Interdisciplinary effectiveness Interdisciplinary effectiveness is the integration and synthesis of multiple viewpoints and practices, working effectively across disciplinary boundaries.
GQ8	Integrated professional, ethical, and personal identity An integrated professional, ethical and personal identity is understanding the interaction between one’s personal and professional selves in an ethical context.
GQ9	Influence Engaging others in a process, idea or vision.

Outcome map

Learning outcomes	Graduate qualities
Learning outcomes

Responding to student feedback

This section outlines changes made to this unit following staff and student reviews.

No changes have been made since this unit was last offered.

Disclaimer

The University reserves the right to amend units of study or no longer offer certain units, including where there are low enrolment numbers.

To help you understand common terms that we use at the University, we offer an online glossary.

Current students

Overview

Overview

Unit details and rules

Teaching staff

Assessment

Assessment

Assessment summary

Assessment criteria

Late submission

Academic integrity

Learning support

Learning support

Simple extensions

Special consideration

Using AI responsibly

Weekly schedule

Weekly schedule

Attendance and class requirements

Study commitment

Required readings

Learning outcomes

Learning outcomes

Graduate qualities

Outcome map

Responding to student feedback

Responding to student feedback

Disclaimer

On this page

Useful links

Media

Student links

About us

Connect

Current students

ECOS3007: International Macroeconomics

Semester 1, 2020 [Normal day] - Camperdown/Darlington, Sydney

Overview

Overview

Unit details and rules

Teaching staff

Assessment

Assessment

Assessment summary

Assessment criteria

Late submission

Academic integrity

Learning support

Learning support

Simple extensions

Special consideration

Using AI responsibly

Weekly schedule

Weekly schedule

Attendance and class requirements

Study commitment

Required readings

Learning outcomes

Learning outcomes

Graduate qualities

Outcome map

Responding to student feedback

Responding to student feedback

Disclaimer

On this page

Useful links

Media

Student links

About us

Connect