Harms/International Macroeconomics

1. Introduction

1.1. What this lecture is about: topics and questions 1.2. What this lecture is good for: goals 1.3. Outlook 1.4. Organization

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Harms/International Macroeconomics Topics and questions What is a current account deficit, and is it something to worry about?
Current Account Balance in 2010 (in % of GDP)
30

20

10

Norway

Malaysia

Germany

Iceland

Nigeria

China

France

Italy

Azerbaijan

Switzerland

Thailand

Greece

Poland

-10

-20

-30

Source: IMF (World Economic Outlook database)

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Niger

USA

Harms/International Macroeconomics Topics and questions What is a current account deficit, and is it something to worry about?
Germany: Current Account Balance (% of GDP)
10

0 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -2 -4

Source: World Bank (World Development Indicators)

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Harms/International Macroeconomics Topics and questions (How) do budget deficits affect the external wealth of nations?
4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 -12,000 -14,000 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

USA: General Government Budget Balance (% of GDP) USA: Current Account Balance (% of GDP)

Source: International Monetary Fund (WEO database); Values for 2009 and 2010 are forecasts.

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Harms/International Macroeconomics Topics and questions Does demographic structure contribute to global imbalances?
30

20

Current account balance (% of GDP, 5-year averages)

10

0 0 -10 0.2 0.4 0.6 0.8 1 1.2

-20

-30

-40

Age dependency ratios (5-year averages)

Source: World Bank (World Development Indicators)

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Harms/International Macroeconomics Topics and questions How can/are international investments used to diversify countryspecific risks ?
Country Australia Austria France Germany Switzerland UK USA Average (24 countries)
Source: Sorensen et al. (2007)

Foreign equity in equity portfolio (2003) 17.20 61.14 28.15 44.70 47.52 29.51 14.32 31.85

Equity Home Bias (between 0 and 1) 0.82 0.39 0.71 0.54 0.51 0.68 0.74 0.67

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Harms/International Macroeconomics Topics and questions How can we explain the (excess?) volatility of nominal exchange rates?
20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 1975 1979 1983 1987 1991 1995 1999 2003 2007

Percentage change of monetary fundamentals (money supply and GDP) Depreciation of the Swiss Franc against the US dollar
Source: IMF (IFS) and own calculations

Growth rates of the nominal exchange rate and of monetary fundamentals (Switzerland / USA)

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Harms/International Macroeconomics Topics and questions How does monetary and fiscal policy affect economic activity in open economies ?

Cumulative impulse response functions of output following a government expenditure shock

Source: Ilzetzki et al. (2010)

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Harms/International Macroeconomics Goals Reasons to be interested in international macroeconomics: A non-exhaustive list. Importance of international trade in goods and assets for growth and welfare (export champion, global imbalances). Scope for economic policy influenced by international goods and asset markets (stimulus packages, debt sustainability) Role of exchange rate for asset returns and price competitiveness (currency wars) Influence of international financial linkages on stability of domestic financial system (default risk, financial crises)
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Harms/International Macroeconomics Outlook The balance of payments: concepts, definitions, numbers Intertemporal trade: The basic representative consumer (RC) model Overlapping generations, demographic structure, and the current account Uncertainty and international diversification The exchange rate Monetary and fiscal policies in open economies
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Harms/International Macroeconomics Outlook Target audience Master International Economics and Public Policy (Module Advanced International Economics) Diplom VWL oder BWL Kernfach VWL-Theorie Kernfach VWL-Politik Wahlfach Internationale Wirtschaftsbeziehungen

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Harms/International Macroeconomics Organization Further information: Homepage: http://www.international.economics.uni-mainz.de Office hours: Monday, 11 a.m. 12 a.m. All lecture materials (including this introduction) will be available in Reader Plus (registration number: 11908) The password will be announced in class.

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Harms/International Macroeconomics Organization Some well-meant advice Attend class on a regular basis and actively participate. Download lecture material from ReaderPlus Solve problem sets in advance. Download data (IMF, World Bank): Access through menu item Data on the Int.Econ. homepage: http://www.international.economics.uni-mainz.de Read (The Economist, The Financial Times) and try to make sense of it.
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Harms/International Macroeconomics Organization International macroeconomics in the public discussion

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Harms/International Macroeconomics Organization Persons, times and places: Lectures: Philipp Harms Tutorials: Jie Fu Regular dates: Monday, 12.30 p.m. 2.00 p.m., Room RW2 Wednesday, 8.30 a.m. 10.00 a.m., Room RW2 Start of course (first lecture): Monday, April 23, 2012 Some lectures will take place on Mondays, some tutorials will take place on Wednesdays. A detailed schedule will be available on Reader Plus.
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Harms/International Macroeconomics Organization Literature:

Harms, Philipp (2008): Internationale Makrokonomik, Mohr Siebeck. Copeland, Laurence (2005): Exchange Rates and International Finance, 4th edition, Prentice Hall. Krugman, Paul R. and Maurice Obstfeld (2003): International Economics Theory and Policy, 6th edition, Addison Wesley. Obstfeld, Maurice and Kenneth Rogoff (1996): Foundations of International Macroeconomics, MIT Press. Van Marrewijk, Charles (2007): International Economics, Oxford University Press. See detailed program and reading list in Reader Plus. 1-16