AECO 27A00 - Trade and International Finance

The objective of the course is to offer students an introduction to two key dimensions of globalization: international trade and international finance. The course will cover both theoretical and empirical contributions and will often refer to current policy issues in both international trade and macroeconomics. Using theoretical and empirical tools, we will consider a wide range of questions such as: what are the gains of specialization? What is the effect of trade on inequality? How does market power of firms affect international trade? What are the consequences of trade policies? How to understand international financial flows? What is the relation between exchange rates and monetary policy? How does globalization affect the conduct of macroeconomic policies? Is the euro an optimal currency area? Why so many international financial crises?

The prerequisite for this course is the core economics course in the first year (or equivalent introductory undergraduate course in economics). Although not very formalized (we will mostly use graphs to explain theoretical mechanisms), this course will use some basic mathematical tools that are common in any modern course in economics.

Plan du cours:

Part 1. International Trade

Measuring Globalization / Comparative advantage

History of Globalization

Ricardian Theory of Comparative Advantage

Textbooks: KOM : chapter 2

MM : chapters 1 and 2

KOM : chapitre 3

MM : chapitre 6

Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy, Kevin H. O’Rourke et Jeffrey G. Williamson, MIT Press, Cambridge, 1999.

Globalization, employment and wages

HOS Theory

Trade and Inequalities

The China Shock

Textbooks: KOM : chapter 5

MM : chapter 7

International trade and market power

Trade and Imperfect Competition

Product Differentiation

Textbooks: KOM : chapitre 8

MM : chapitre 8

The decision to export and/or invest abroad

Exporting firms

Firms boundary and multinationals

Textbooks: KOM : chapter 8

MM : chapters 9, 10 and 11

Trade Policies

Explaining protectionism

Trade agreements. Regional and multilateral agreements

Textbooks: KOM : chapters 9 to 12

MM : chapters 12, 13 and 15

Part 2. International Finance

• Financial Globalization, Capital Flows and the Balance of Payments

Financial Globalization

National Income Identities and the Balance of Payments

Theory of international capital flows

Net foreign assets and valuation effects

Textbooks: KOM: chapter 13

• Exchange rates and financial markets

Foreign exchange markets

The uncovered interest parity condition

Monetary policy, interest rate and the exchange rate

Textbooks: KOM : chapter 14 and 15

• Economic Policies in Open Economies

Purchasing Power Parity

Real exchange rate and current accounts

The Mundell-Fleming model (AA/DD version)

Economic policy in an open economy, spillovers of fiscal and monetary policies.

Textbooks: KOM : chapters 16 and 17

• Fixed exchange rates and currency unions

The loss of monetary policy autonomy under fixed exchange rates (the trilemma) and currency wars. Capital controls

Currency unions and the theory of optimal currency areas. The European experience

Financial crisis. Currency and Sovereign debt crises

Textbooks: KOM : chapters 18, 21 and 22

First year core economics course or equivalent introductory undergraduate course in economics

One mid-term and one final exam (2hours each)

Regular work in Conference de Méthode