Course info

The course builds on the macroeconomics taught in the second year. It focuses on open economy macroeconomics, which is discussed at both an intuitive and a technically advanced level (for instance, by solving a system of difference equations). First, foreign exchange markets and their links to prices and interest rates are shown to determine trade and asset flows. Second, various models of (interest and) exchange rate determination are used to explain short and long run effects on the aggregate economy. Third, the Dornbusch model, a model combining both short and long run effects, is studied in more detail.

Upon successful completion of the course students will have acquired an appreciation of the role of international currency markets in the determination of economic outcomes. Specifically, they will be familiar with a range of models through which they can interpret movements in the exchange rate and its relationship to other key macroeconomic variables. Students will also be familiar with the effects of monetary and fiscal policy in an international setting. They will be able to critically assess the appropriateness of particular policies as a response to important events within the international monetary system. Students will also have had an opportunity to learn how to approach research articles.