Trade and Finance Schedule

Course schedule

Schedule of classes, readings and assignments

Textbook readings are referred to as “FTU” (Free Trade Under Fire), “RDE” (The Return of Depression Economics) and “Euro” (The Euro Crisis and Its Aftermath), followed by the chapter number(s). Links to other readings are available on Moodle.

Tue Jan 17

First day of class

Thu Jan 19

FTU2 (up to page 59, “Vietnam will be considered in chapter 6”): Theoretical and empirical arguments for free trade

Reading notes questions:

What does it mean to say that the US has an absolute advantage (in terms of productivity) over Indonesia?

Then, why do economic liberals (like the author) argue that the theory of comparative advantage is good news for a country like Indonesia, in terms of its ability to gain from trading with more advanced countries like the US?

Irwin’s data shows that China’s labor productivity was 72% of that of the US in apparel production. For machinery production, however, China’s labor productivity is 4% of that of the US. Questions: does any country have an absolute advantage here? And which one has a comparative advantage in apparel?

Briefly state two other reasons (other than comparative advantage) for the existence of gains from increased international trade.

Tue Jan 24

FTU 3: Protectionism

Reading notes questions:

How do tariffs and quotas work?

In what ways are these policies costly for society?

If the costs are so high, why do these policies remain in place?

What is the sugar tariff-rate quota?

What was the MFA and who did it benefit?

Thu Jan 26

FTU 4 “Trade, jobs and income distribution” part 1 (pp114-136)

Reading note questions:

How does international trade create and destroy jobs?

According to the author, what is the evidence and how should we interpret it?

How has the US manufacturing sector been affected by international trade?

How has trade with China affected the US?

How has offshoring affected the US economy?

Tue Jan 31

FTU 4 part 2 pp 137-155 (stop at top of p 155)

Reading notes questions:

How does international trade affect wages?

Why do some researchers think it contributed to the rise in income inequality in the US?

How does the author interpret the evidence? Do you agree?

What is the trade adjustment assistance program? Do you think it is a useful policy?

Thu Feb 2

FTU 5: Anti Dumping

Reading notes questions:

What is dumping?

How do we figure out that a foreign producer is guilty of it?

Why does it cause trade diversion?

What are the costs of anti-dumping for the US?

How can the law be corrupted?

What is the Escape Clause?

Why does Irwin believe temporary protection from imports doesn’t work? Do you agree with his assessment of cases like steel, textile and Harley Davidson?

Tue Feb 7

QUIZ STARTS AT 10AM  Trade quiz 1, on all topics so far.

Thu Feb 9

FTU 6: Trade and Development I

Reading notes questions:

What data and examples does the author use to argue that more open trade is good for development?

What positive role has international trade played for China and India?

How has NAFTA affected Mexico? Does it confirm or challenge the author’s general view that more open trade is good for development?

What is the author’s view on the issue of sweatshops? Do you agree?

Do you believe in fair trade to help the poor? Why/why not?

Tue Feb 14

Trade and Development II: Reading on Moodle

Reading notes questions:

How does Dani Rodrik (the author of this reading)’s view on the East Asian miracle differ from Irwin’s (in the chapter we read for the previous class)?

How is his take on China different from Irwin’s?

Why does this author argue that industrial policy and import-substitution industrialization actually did some good?

For Rodrik, what explains the success of Mauritius and the difficulties of South Africa?

Thu Feb 16

The politics of multinational corporations: reading on Moodle

Reading notes questions:

What were some concerns of developing countries regarding MNCs ownership of critical natural-resource industries?

Give two types of regulation that developing countries put in place to influence MNCs’ activities?

What are export processing zones?

Why do MNCs usually enjoy more bargaining power than host countries in low-skilled labor-intensive manufacturing industries?

Why have advanced industrial countries have been less vulnerable to foreign MNCs’ domination than developing countries?

Tue Feb 21

The Trans-Pacific Partnership (part 1)

Readings:

FTU Chapter 7, only pp281-294 (Regional Trade Agreements)

Read through the set of 10 cards explaining the TPP here: http://www.vox.com/cards/trans-pacific-partnership/what-is-the-trans-pacific-partnership

Reading note questions:

How to regional trade agreements (RTAs) differ from WTO multilateral agreements?

Why are many economists skeptical about preferential trade arrangements?

Why do preferential/regional trade agreements include “rules of origin?”

In your view, which aspects of the TPP seem especially controversial?

(NOTE: the investor state dispute settlement will be the focus of next class, see below!)

Thu Feb 23

The Trans-Pacific Partnership (part 2): Zoom on the investor state dispute settlement

Readings: the two links below.

“The TPP has a provision many will love to hate”

https://www.washingtonpost.com/blogs/monkey-cage/wp/2015/10/06/the-tpp-has-a-provision-many-will-love-to-hate-isds-what-is-it-and-why-does-it-matter/

Weapons of legal destruction?

http://www.theguardian.com/business/2015/nov/10/tpps-clauses-that-let-australia-be-sued-are-weapons-of-legal-destruction-says-lawyer

Reading notes questions:

What’s the point of the investor state dispute settlement?

In what ways is it controversial in the TPP?

Tue Feb 28

Class workshop for research on the upcoming trade paper.

Today, we are working on your upcoming research paper, so you can do some research and ask me questions as needed.

If you don’t yet use a software for your citations, you should start, it’s so much easier, and formats can be changed in 2 seconds even when you are all done with the paper. The library has Refworks, but the free Firefox extension Zotero is very good too.

If you are interested, here’s an excellent Zotero tutorial: how to get started, build a reference database, and include citations and bibliography in Word. If you have never used a citation and bibliography management software, this is well worth the 15 minutes or so. It will save you HOURS of very tedious work in all your classes: https://www.youtube.com/watch?v=mP5AzJHXfIA

Thu Mar 2

QUIZ STARTS AT 9:30AM Trade quiz 2 (cumulative, all topics so far).

 

Tue Mar 7

No reading. Material provided in class. Work on your paper.

Thu Mar 9

Trade research paper due on Moodle by 23:59pm.

SPRING BREAK

Tue Mar 21

In place of a readingwatch the videos at the links below from the Khan Academy, AND read the “Bill Gates Handout” (one page, available on Moodle)

Three videos (total of 21 minutes) on the balance of paymentshttps://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/current-capital-account

One video (only the first one, 3 min 34 sec) about central banks’ accumulation of foreign currency reserveshttps://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currency-reserves/v/accumulating-foreign-currency-reserves

and post your answers to the reading notes questions on Moodle as usual.

Reading notes questions:

  1. What are the different parts of the current account?
  2. What are the different parts of the capital account?
  3. What is the statistical discrepancy?
  4. Selena, an American citizen, sends $1000 to support her family in Mexico.  Where does it go in the US balance of payments, and is it a debit or a credit?
  5. A French citizen owns shares in Microsoft, and receives dividends for $1000. Where does it go in the US balance of payments, and it is a debit or a credit?
  6. Suppose that in a given year, the US current account balance is a deficit of 700 billion dollars.
  • That year, was the US capital account in deficit or in surplus?
  • That year, assume that foreign purchases of US assets were $ 2000 billion, and that US purchases of foreign assets were $1200 billion. Is that a net capital inflow or a net capital outflow for the US?
  • And what is the necessary net change in foreigners’ official reserves that must occur for this to be possible?
  1. Justin, a Canadian musician, on a tour in France, sells an album to a French citizen who pays Justin 20 Euros. The sale is a Canadian export to France, which, all else equal, is a rise in net exports in the Canadian current account.Following the Bill Gates Handout,explain four ways in which something else happens that preserves the net exports = net capital outflows identity)? (Hint: The Bill Gates handout explains this step by step; this question is pretty much identical)
  2. An American company builds a house and sells it to a French citizen for $1 million.
  • Where does this go in the US balance of payments (see Khan academy video #2 for this)?
  • Using the Bill Gates handout, explain what else happens to preserve the net exports = net capital outflow identity? (hint: this house purchase is a net inflow of capital for the US, which must be matched by something else, and what it is depends).

Thu Mar 23

RDE 2: The Tequila Crisis

Reading notes questions:

What kind of reforms international investors convinced there was a “Mexican miracle” in the early 1990s?

What factors reversed investors’ confidence in the Mexican economy?

Why did the Mexican central bank have to stop defending the fixed exchange rate regime?

What role did the US Treasury and the World Bank play to stop the panic?

Tue Mar 28

RDE 4: Asia’s crash

Reading notes questions:

During the economic boom in Thailand, what did the Thai central bank have to do to prevent an appreciation of the baht?

What is crony capitalism?

Why does Krugman argue there is a vicious circle of financial crisis?

Which other Asian countries suffered due to “contagion” from the Thai crisis?

Thu Mar 30

RDE 5: Understanding the capital controls debate

Reading notes questions:

What is an “adjustable peg” exchange rate system?

What is the trilemma that policy makers in each nation face in the global economy?

What are capital controls?

What is a self-fulfilling crisis?

Why does Krugman blame the “confidence game” for Brazil’s 1998 crisis?

Tue April 4

RDE 6 and 7: Hedges funds; Greenspan’s bubble

Reading notes questions:

For chapter 6:

Explain how George Soros made a lot of money by playing with the British Pound.

What happened in the panic of 1998?

For chapter 7: 

What does Krugman mean when he says that Alan Greenspan let “the punch bowl stay out while the party went on”?

On housing, why did lenders relax their standards, according to Krugman?

What is the securitization of home mortgages?

What is a collateralized debt obligation (CDO)?

For Krugman, what does Greenspan’s approach to monetary policy have to do with the housing bubble?

Thu Apr 6 (NOT INCLUDED IN QUIZ 1, QUIZ 1 material stops at what we cover on April 4 in class)

EURO 1 and 2

Intro to the European Debt Crisis

Reading notes questions:

Chapter 1 (Note: there is a lot in here, too much! It’s a very fast overview of the whole picture. We will break each part down in the next chapters as we progress)

How would you describe the central divergence between Northern and Southern European countries? How did this contribute to the crisis? (Note: think about the balance of payments, notably capital inflows and outflows)

Why did the Euro help governments and households borrow more in countries like Ireland, Spain and Greece?

Why did the “interest rate spread” between Germany and Greece rise after October 16, 2009?

Why does the author say that the Eurozone had a crisis prevention system but no crisis management system?

Chapter 2:

What makes the Euro a currency of a kind “never seen before?”

What were some reasons to be skeptical of the Euro back in the times when it was just a project?

What were the behavioral, logical and political reasons behind the strong push for the Euro, despite all the cautionary arguments?

Tue Apr 11

QUIZ STARTS AT 10AM

International finance quiz 1 (all finance topics)

Thu Apr 13

Euro 3, 4 and 5

Reading notes questions:

Chapter 3

Why did the German model dominate in shaping the ECB?

What provisions guaranteed ECB independence?

How was budgetary discipline incorporated in the Euro archictecture?

Chapter 4

Why was the monetary union seen as incomplete?

Why did Germany and France disagree on what to do about it?

Chapter 5

According to the author, how did many European countries fail to adapt to make sure they could function as part of a monetary union?

Tue Apr 18

No class, Pierre traveling to conference. Homework is the following (complete it by Tuesday evening):

Listen to this podcast on Argentina’s default in 2001: http://www.npr.org/sections/money/2011/10/14/141365144/friday-podcast-the-price-of-default#more

Read this article comparing the idea of a Greek default to Argentina’s: https://www.nytimes.com/2015/06/26/business/an-echo-of-argentina-in-greek-debt-crisis.html?_r=0

Reading notes assignment (post on Moodle):

Write a one page explanation of the 2001 Argentina crisis. Use some of the finance concepts we have studied before, in particular the role of a fixed exchange rate commitment.

Why does the NY Times piece argue that a Greek default would be similar but even worse?

Thu Apr 20

No class, Pierre traveling to conference.

Reading notes assignment:

Post answers to the following homework as reading notes on Moodle as usual (Complete it by Thursday evening; the time it will take incorporates what you would have done for the reading plus the time of class):

  1. Watch this 1 hour BBC documentary about the Euro crisis: https://www.youtube.com/watch?v=Z1LCBp0twLE

What are the key points raised in the documentary? How do they compare with what you already know so far?

  1. Listen to this 1 hour interview with the former Greek finance minister: http://rubinreport.libsyn.com/ep-63-yanis-varoufakis

Summarize his point of view on the crisis in one paragraph or bullet points (about 100-200 words). What do you think about him?

Tue Apr 25

Euro 6, 7, 8, 9

Reading notes questions:

Chapter 6

How did Germany boost its competitiveness?

How did the ECB interest rate policy help make the divergence between Germany and Europe destabilizing?

Chapter 7

Why was Greece a “perfect culprit?”

What were some problems with the crisis prevention framework for the Euro area?

Chapter 8 (note: we will spend most of the time of class on the case of Spain)

What drove the Spanish economic boom of the 2000s and what role did the Euro play?

Why did high inflation persist?

Why did market forces fail to correct imbalances?

Why could the Bank of Spain have done to prick the bubble, and why did it fail to act?

Why did the EU fail to act?

Chapter 9

What were key weaknesses in France and Italy?

Thu Apr 27        

Euro 14, 15, 17

Reading notes questions:

Chapter 14

In Europe, unlike in the US, why has so much emphasis been placed on fiscal discipline and consolidation to address the crisis?

Chapter 15

Some have discussed the possibility that Greece leave the Euro area, a “Grexit!” What obstacles does the author see to a Euro area exit?

Chapter 17

According to the author, why was there “a lethal feedback loop between banks and sovereigns?”

How could Eurobonds help address this?

What about the banking union?

Tue May 2

QUIZ STARTS AT 9:30am. International finance quiz 2 (cumulative, all finance topics)

Tue May 9 by 10am

Finance paper due on Moodle. This is the end of officially scheduled final exam (there’s no final exam, just the paper to turn in online).

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