Econ 666

International Finance for Undergraduate Students                                                                                   [Home]

Syllabus (PDF)

Instructor: Nan Li, 403 Arps Hall.

Time and Location: M W 11:30am-1:18pm, Hitchcock Hall 0030. 

Office Hours: F 3-5pm

Teaching Assistant: KyoungSoo Yoon,

Prerequisites: Econ 444 or 641 (econometrics) and 502 (intermediate macro)

     This is an elective course in International Finance (or International Macroeconomics). The course is divided into a theory part and a policy part. We will start with the important analytical tools including the equilibrium models of exchange rate determination, parity conditions in international asset and goods markets, monetary policy in an open economy. In the second part of the course we will apply these tools and discuss a range of international macroeconomic policies concerning developed and developing countries. These include the evolution of the international monetary system, the functioning of the global capital market, U.S. current account deficit, formation of the Euro and international financial crises.  

Textbook and Readings:
     Paul Krugman and Maurice Obstfeld, International Economics: Theory and Policy, 7th edition (KO), Ch 12-22. (If you use the sixth editions, you are responsible for finding the missing information and the related materials).
     Lectures will generally follow the textbook using powerpoint presentation. I will also hand out additional readings during the course and you are recommended to be informed of the current
events in international financial markets. For example, you may find it interesting and rewarding to read The Economists, The Financial Times, The New York Times and the Wall Street Journal on a regular basis.
     There is also an useful website:, where you can find additional resources of practice exercises. These are not required, but can be proved to be very helpful for learning the materials.

Class Participation: 10%
Five Problem Sets: 25 %. (See Course Outlines for due dates)
Midterm: 25%.
Final: 40%.
     Students are expected to attend lectures and actively participate in class discussions. Note that the class participation can affect your grade at the margin. You are encouraged to work together on problem sets; however, you must write up your own answers. Identical answers will get zero points. Late problem sets will only be accepted with prior approval by the instructor. There is no make-up exam for the midterm; in case of absence, the final will count for a larger percentage of the final grade (65%). I will reserve the right to arrange a make-up exam for the final only in exceptional circumstances (personal or medical emergencies, in which case the student must provide a valid and verifiable written excuse signed by a doctor or university official).

    Re-grade policy: Students must submit a written re-grade request up to one week after the
graded exam is returned. The request has to be approved by the instructor and the whole exam is
sub ject to re-grading if approved. 


Course Outline

This intends to provide a guideline for the course and the schedule is sub ject to change, if we fall
behind or run ahead. The updated schedule will be posted on the course website. The additional
readings beyond the textbook are not required, but they are interesting and useful for the class.

Part I: Exchange Rates and Open-Economy Macroeconomics
1. Balance-of-Payments Accounts
   • KO Ch. 12

2. Foreign Exchange Market and Exchange Rates as Assets
   • KO Ch. 13 and Ch. 21  

3. Money, Interest Rates and Exchange Rates - a model setup
   • KO Ch. 14
   • Dornbusch (1976) “Expectations and Exchange Rate Dynamics”, Journal of Political Economy, Vol. 84, No. 6, pp. 1161-76.  

4. Relative Prices and the Exchange Rates
   • KO Ch. 15
   • Taylor, A. and M. Taylor (2004), “The Purchasing Power Parity Debate”, Journal of Economic Perspectives, Vol. 18, NO. 4, pp. 135-58.    

5. Current Account Determination
   • KO Ch. 16 and handouts
   • Mann, C (2002), “Perspectives on the U.S. Current Account Deficit and Sustainability”, Journal of Economic Perspectives, Vol. 16, No.3, pp. 131-52.

6. Review of materials up to now
   • handouts  

7. Midterm exam

Part II: International Macroeconomic Policy  

8. Fixed Exchange Rate Regime
   • KO Ch.17

9. International Monetary System during the Bretton Woods
   • KO Ch.18  

10. Floating Exchange Rate Regime
   • KO Ch.19

 11. Optimum Currency Areas and the Euro
   • KO Ch.20
   • Frankel, J. and A. Rose “An Estimate of the Effect of Common Currencies on Trade
and Income”, Quarterly Journal of Economics, Vol. 117, No. 2, pp. 437-66  

12. International Financial Crises: currency, debt and banking
   • KO Ch.21, Ch.22
   • Krugman, P. (1999) “Analytical Afterthoughts on the Asian Crsis”, mimeo    

13. Overview
   • handouts  

14. Final Exam