INTERNATIONAL FINANCIAL ECONOMICS

The course aims at providing the students with a wide knowledge and understanding of macroeconomic fluctuations and financial dynamics in relation to economic policies, exchange rate regimes, and foreign exchange markets.

Intermediate macroeconomics (IS-LM in a closed economy, monetary theory and inflation). Elementary mathematical analysis. Basic statistics.

Knowledge and understanding: The course will offer key theoretical tool to analyze how market forces and institutional arrangements determine the exchange rates in the short and long run, global imbalances, crises, and economic policy responses. Applying knowledge and understanding: The students will be able to understand how economic policies and market forces shape exchange rate fluctuations, and how exchange rate risk, impacting on basic corporate finance transactions, can be covered. Making judgments: We expect students to be able to forecast the short and long-run impacts of major public policies on exchange rates and other key economic variables. Also, we expect students to attribute the appropriate relevance to the exchange rate dynamics in the global business environment. Communication skills: This course will give the students the possibility to acquire and understand major terms and concepts in order to communicate their ideas, proposals, analysis and critical reasoning in the field of international financial economics in the most effective and appropriate way. Students’ presentations on the current situation of the world economy are scheduled through the whole class. Learning skills: This course will contribute to empower learners giving them the tools to evaluate in an independent way if and how certain economic policies impact on investing and financing decisions.

The course will cover the following topics: (1) Exchange rate (ER) fundamentals and the forex market: functioning and history of exchange rate regimes; principles of arbitrage; interest parity conditions; hedging the ER risk in corporate business. (2) Monetary and asset approaches to the determination of the ER: money demand and money supply; equilibrium in the money market; the ER transmission channel of central bank policies; purchasing power parity; the monetary approach in the long run; ER overshooting. (3) Balance of Payments (BoP): national accounting and the BoP; intertemporal interpretation of the BoP; international investment position; national wealth. (4) The IS-LM-FX (Mundell-Fleming) model: fixed versus floating exchange rates; fiscal and monetary policy in an open economy; ER crises; the euro and the EU economy. The course may include interventions by practitioners.

Textbook: Robert C. Feenstra and Alan M. Taylor, International Macroeconomics, McMillan Education, 5th edition (2021). https://store.macmillanlearning.com/ca/product/International-Macroeconomics/p/1319218423 - Online material available on luiss/learn

Lectures, interactive sessions consisting of practices, exercises, guest lectures and seminars, discussions of cases studies and relevant empirical facts.

Continuous assessment (50%) and Final Exam (50%).

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