Harvard University **We aren't endorsed by this school
Oct 31, 2023
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1 Revised: Jan. 20, 2023 API-120: Advanced Macroeconomics of Open Economies II, Spring 2023 Harvard Kennedy School, Harvard University Staff -- 1 st Professor: Jeffrey Frankel [email protected] 2 nd Professor: Federico Sturzenegger [email protected] Faculty Assistant: Erin Meade [email protected] Teaching Fellow: Lina Thomas Course Assistants: Charles Albinet, Carlos Munoz-Carcamo, & Danni Sun Team email: [email protected] Times -- Lectures: Mondays and Wednesdays, 1:30-2:45 pm in L-140. 1/ Review Sessions: Wednesdays, 4:30-5:45 pm or 6:00-7:15 pm in W436. Final exam: Friday, May 5, 2:00-5:00 pm. Course Description : API-120 is "Macro II" -- the second in the two-course core sequence on Advanced Macroeconomics of Open Economies in the MPA/ID program. Topics covered in the first half of this semester include: international financial integration, exchange rate models, speculative attacks, the carry trade, portfolio choice, currency risk, default risk, and debt sustainability analysis. The second half of the course uses tools of dynamic optimization. It begins with long-term growth theory, including the Solow, Ramsey, and endogenous growth models. It then offers primers on Overlapping Generations, Real Business Cycle theory and New Keynesian models, and finishes discussing the practical workhorses of modern macro: Dynamic Stochastic General Equilibrium models and Vector Autoregressions. Nature of the approach : The course is largely built around analytical models. Although real- world examples will appear throughout, the course will rely heavily on theoretical and econometric analysis, as is customary in economics classes. The second half of Macro II calls for a higher level of math than the first, we strongly recommend students to engage in advanced reading of the required material for this second half. Who is expected to take the course : This course, like Advanced Macroeconomics for the Open Economy I (API 119), is a required component of the MPA / International Development sequence. In addition to MPA/ID students, one or two students who have successfully taken API 119 in the fall may be admitted by permission of instructor . 1/ There will be an extra lecture (Unit 3) on Friday, Jan. 27 , 4:30 pm-5:45 pm. In W436 .
2 Weekly structure of the course: A standard week will consist of two units. Each unit will consist of: (i) a required reading (plus others recommended). Before each live lecture, you should complete the required reading for the new unit; (ii) the live lecture from the Professor; (iii) an asynchronous component, which will include a recorded mini-Lecture from the professor, plus one or more quizzes. Students should do the asynchronous component after the live lecture, as in API-119. Do not get behind in taking the quizzes. The teaching Fellow (TF) will conduct a substantive review session Wednesdays, 4:30-5:45 pm or 6:00-7:15 pm, in W436. The entire teaching team will also hold office hours. Students should make heavy use of [email protected] , sending any and all questions to it. The teaching team will monitor it frequently. The response to a student's question may be a directly e-mailed answer, a decision to dedicate somebody's office hours to the topic in question, or the arrangement of a special bilateral appointment. Grading : 15 %: 6 Problem sets 25%: Quizzes* 20%: Mid-term exam 35%: Final exam 5 %: Class participation. * Quizzes are to be taken bi-weekly, as part of each Asynchronous Module. Do not get behind in the quizzes! Problem Set Due date (8:30 am). No late problem sets. (We make the solutions available.) 1. Friday, Feb. 3 2. Friday, Feb. 17 3. Friday, Feb. 24 [Mid-term exam, Wed., March 8, in class] 4. Friday, March 31 5. Friday, April 14 6. Friday, April 28 [Final exam: Friday, May 5, 2:00-5:00 pm] Please check the dates and times of the midterm and final exams. If you have a conflict, such as a plane flight time in May, do not take the course. Use of ChatGPT is not allowed in this course. Students must take quizzes and exams alone; no discussion with other students is allowed. Students are responsible for knowing what is in the Academic Code , including this paragraph: "Cheating on assignments or exams, plagiarizing or misrepresenting the ideas or language of someone else as one's own, falsifying data, or any other instance of academic dishonesty violates the standards of our community, as well as the standards of the wider world of learning and affairs...If students submit work either not their own or without clear attribution to the original source, including but not limited to the Internet, they will be subject to discipline by the HKS Administrative Board, ranging from a warning to required withdrawal or expulsion from HKS."
3 Topics and Lecture dates Problem Set due-dates First half of semester: Professor J. Frankel I. INTEGRATION OF FINANCIAL MARKETS 1. (1/23/2023) The theory of gains from intertemporal trade Mini-lecture: Graphical analysis 2. (1/25) Do financial markets work in practice as they do in theory? Mini-lecture: Macro-prudential policies 3. (1/27 Extra Friday lecture ) Measuring financial integration: Interest Rate Parity Mini-lecture: Quantity tests of financial integration II. EXPECTATIONS AND EXCHANGE RATES 4. (1/30) With flexible goods prices Mini-lecture: Derivation of the model with rational expectations 5. (2/1) The speculative attack model Mini-lecture: Generations 2 & 3 of speculative attack models ___ PS 1 due 2/3 6. (2/6) With sticky prices: The overshooting model Mini-lecture: Empirical performance of exchange rate forecasts III. THE CARRY TRADE, RISK, & PORTFOLIO DIVERSIFICATION 7. (2/8) Forward rate bias Mini-lecture: Introduction to the exchange risk premium and portfolio balance model 8. (2/13) Optimal portfolio diversification Mini-lecture: The efficient frontier, as viewed by Botswana's Pula Fund 9. (2/15) Home bias, currency risk, and equity risk Mini-lecture: The model applied to country risk ___PS 2 due 2/17 [February 20: Presidents' Day holiday] IV. DEBT & EM CRISES 10. (2/22) Debt Sustainability Analysis Mini-lecture: Explosive debt ___ PS 3 due 2/24
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