International Economics II

  1. National Income Accounting and the Balance of Payments

National Product and National Income, The National Income identity for an open economy, current account and foreign indebtedness, saving and current account, private and government saving, capital account, official reserve transaction, Marshal-Lerner Condition  

  1. The Foreign Exchange Market

Characteristics of foreign-exchange markets; spot and forward transactions; foreign exchange future, option and swaps, exchange rate and asset return, return, risk and liquidity in foreign exchange market, Covered interest parity, exchange-rate risk and uncovered international parity, determination of equilibrium exchange rate, effect of changing interest rate on and changing expectation on current exchange rate.  

  1. Money, Prices, Interest Rates and Exchange Rates in Short run and Long run

Equilibrium in the Money market in open economy, money and exchange rate in short run and long run, law of one price, PPP, long run exchange rate model based on PPP, Why PPP do not hold and its explanation, long run model beyond PPP, real exchange rate and real PPP under international interest rate differential.  

  1. Output and Exchange Rate in the Short Run

Determination of the equilibrium output, exchange rate in the regime of flexible price, fixed price and sticky price models  

  1. Fixed Exchange rate and Foreign Exchange Intervention

Fixed exchange rate as a instrument of Central bank intervention in the money market, stabilization policies under fixed exchange rate regime, Capital flight and BOP crisis.

  1. Macroeconomic Policy and Coordination Under Floating Exchange rates

    Floating exchange rate regime  its advantages and disadvantages


  1. International Economics. (9th Ed.), Paul Krugman and Maurice Obstfeld.

  2. Open Economy Macroeconomics, RudigerDornbusch, Basic Books, New York.

  3. International Finance and Open Economy Macroeconomics, Batiz&Batiz.

  4. Exchange Rates and International Finance, 4th Ed. Laurence Copeland, Pearson