INTERNATIONAL FINANCE

This course provides an in-depth analysis of models of exchange rate determination. The course starts with a review of the basics relationships in currency markets, like covered and uncovered interest parities. Monetary models of the nominal exchange rate are presented followed by the Mundell-Fleming- Dornbusch model. We will also learn how speculation can lead to a currency crisis both from a fundamental and a self-fulfilling perspective. Then, we turn to microfounded models of the nominal exchange rate. The course will conclude by addressing the economics of liquidity traps and the occurrence of secular stagnations.

Macroeconomics, Monetary Policy, Statistics.

Upon completion of the subject, students will be able to: a) discuss the basic concepts of international finance. b) understand the main determinants of exchange rates. c) understand the basic concepts of international macro-finance models.

Foreign Exchange-Rate Markets Covered Interest Rate Parity Uncovered Interest Rate Parity A Primer on Difference Equations Monetary Model of the Nominal Exchange Rate The Mundell-Fleming-Dornbusch Model Speculative Attacks on Fixed-Exchange-Rate Regimes Self-Fulfilling Currency Crises Exchange-Rate Models with Microfoundations Liquidity Traps. Secular Stagnation The Return of Inflation

Obstfeld, Maurice and Kenneth Rogoff (1996), Foundations of International Macroeconomics, The MIT Press. (OR) There is a course’s web page available at learn.luiss.it which contains updated information on the syllabus and course’s materials.

Lectures, Exercises, Readings and work with data.

Midterm, class participation and final exam

Strong interest in the topics developed in the course and in reading advanced scientific articles.