2020/2021
Applied International Economics - an Analysis of Current Issues
Category 'Best Course for Broadening Horizons and Diversity of Knowledge and Skills'
Category 'Best Course for New Knowledge and Skills'
Type:
Optional course
Delivered by:
Department of Theoretical Economics
When:
1, 2 module
Instructors:
Martin G. Gilman
Language:
English
ECTS credits:
1
Contact hours:
16
Course Syllabus
Abstract
Covid has come as a shock to the world economy, but in many cases it merely accelerates fundamental trends that were happening anyway. Deglobalization, the debasement of western currencies, the de-dollarization of emerging markets, the attempts to replace carbon energy with renewables, the increase in social tensions linked to living in multicultural societies: everything now seems to be in a state of stress. In these circumstances, there is a significant probability that the world economy is about to stumble into a period of financial dislocation. The danger is that the confluence of slow real growth, low productivity increases, inflated asset prices (notably bonds, equities, and real estate) and higher public debt in many of the major G20 economies cannot be sustained much longer. The policy response to the COVID pandemic exacerbates these tendencies. As of mid-September, the imbalances between growth, debt, and asset prices in advanced economies continue to widen. The radical economic policies pursued by most of the world’s advanced economies in recent years, and even more so since the policy responses to the COVID pandemic, are an experiment in which we are all inevitably participating. Ironically, Russia is one of the few exceptions. The Bank for International Settlements, among others, has been expressing its concerns that collectively we have been unable to constrain the build-up of financial imbalances, leading to a progressive narrowing of policy options. Not only are financial imbalances now much worse than in 2008 but the concentration and power of large banks is more entrenched, shadow banking is more pervasive, and there has been a massive misallocation of capital owing to mispricing, which has exacerbated income inequality via financial repression and productivity-sapping bailouts to crippled firms. These seem to have the side effect of perpetuating unsustainable asset bubbles. It hardly seems surprising that that de-globalization has become a factor in the internal politics of too many countries.
Learning Objectives
- to determine whether the global economy is experiencing a bubble of historic proportions, an astute exercise in financial repression or something else. It may come as some relief to know that nobody seems to know the answer to these questions
Expected Learning Outcomes
- recognition that there may be no correct answers on an a priori basis to many of the critical questions about growth, employment and inflation
Course Contents
- Systemic issues• International monetary system – more than 7 decades after Bretton Woods • Revisiting the Triffin trilemma • Advanced and emerging market economies • Fear of secular stagnation • The limitations of traditional macroeconomic policy • Financial repression – a historical overview
- Crisis prevention• What happened in 2007-8? What did we do? • The elusive goal of financial stability, masking real instability • Unintended consequences • Balance sheet risks in the global economy • Financial mania and panics – Minsky et al • Is the debt bubble sustainable?
- Evolution of economic relations11 years after the beginning of the Great Recession • The age of central bankers • What are US markets for short-term funds signaling? • What models to use? • Global economic coordination – China • Sanctions and economic weapons
- Growth dilemma• A historical and international perspective • Real and nominal values: example of the determinants of GDP growth • The productivity paradox – a worldwide phenomenon • Growing inequality and the political economy dimension • The problem with debt – is a debt jubilee possible? • De-globalization as a reversion to the mean
- Crisis Resolution• Savings dilemma • QEs and helicopter money • Modern Monetary Theory • NIRP, the Japanese experience and Sweden, Switzerland, etc. • Public pensions, private retirement accounts, insurance • Underfunded liabilities and fiscal unsustainability
- The future of international finance• Correlation between markets • Changing trade relations • International capital flows and exchange rate regimes • Economic globalization is hard to reverse • Globalization and the rise of economic nationalism in many countries • The changing role of shadow banking • FinTech, cryto-currencies and alternative assets • Policy dilemmas • What next?
Interim Assessment
- Interim assessment (2 module)0.3 * Class participation + 0.7 * Multiple-choice exam
Bibliography
Recommended Core Bibliography
- Peter Skott, & Hyman P. Minsky. (1992). The Financial Instability Hypothesis by. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.5947F726
- Reinhart, C. M. . (DE-588)128390883, (DE-576)167340395. (2009). This time is different : eight centuries of financial folly / Carmen M. Reinhart; Kenneth S. Rogoff. Princeton, N.J. [u.a.]: Princeton Univ. Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edswao&AN=edswao.310946565
- William R. White. (2012). Ultra Easy Monetary Policy and the Law of Unintended Consequences *. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.77F5AE54
Recommended Additional Bibliography
- Ben S. Bernanke. (2012). The Great Moderation. Book Chapters. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.h.hoo.bookch.4.6
- Reinhart, C., Kirkegaard, J., & Sbrancia, B. (2011). Financial repression redux. MPRA Paper. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.pra.mprapa.31641
- Robert J. GORDON. (2015). Secular Stagnation on the Supply Side: U.S. Producivity Growth in the Long Run. Communications & Strategies, (100), 19. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.idt.journl.cs10001