International Financial Markets Bachelor-Seminar
Prof. Dr. Tino Berger Chair for Empirical International Economics
Preliminary meeting - 17th October, 2016
International Financial Markets
Topics 1. Exchange rate regimes A country’s choice regarding its exchange rate regime is crucial for its economic development. Various studies find important implications for the long-run economic growth and point out potential drawbacks as well as advantages inherent to the respective exchange rate regime. But what different types of exchange rate regimes are there? What kind of (dis)advantages are related to them? Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 8, chapter 2.2. Levy-Yeyati and Sturzenegger (2001): Exchange rate regimes and economic performance, IMF Staff Paper, 47 (Special Issue): 62-98. Rogoff et al. (2003): Evolution and Performance of Exchange Rate Regimes , IMF Working Papers 03/243, International Monetary Fund.
International Financial Markets
Topics 2. Foreign Exchange Markets and (un)covered interest rate parity The Foreign exchange trade volume is continuously rising. The players in the FX market are taking advantages of profit opportunities that exist under arbitrage conditions. However, by doing so an important problem the traders in the FX market face is the exchange rate risk. The theory of interest rate parity plays an important role in handling this exchange rate risk. What does the theory of (un)covered interest rate parity imply? How can the existence of interest rate parity be empirically tested? Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 2. Flood and Taylor (1996): Exchange Rate Economics: What‘s Wrong with the Conventional Macro Approach? in J.A. Frankel, G. Gali, and A. Giovannini, (eds), The Microstructure of Foreign Exchange Markets, Chicaho, Chicago University Press, 262-301. Chinn and Meredith (2011): Testing Uncovered Interest Parity at Short and Long Horizons during the Post-Bretton Woods Era, NBER Working Paper No. 11077. International Financial Markets
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3. Purchasing Power Parity The concept of PPP is used for the determination of exchange rates as well as the ascertainment of over- or undervaluation of internationally traded currencies. According to this theory exchange rates serve as a tool for balancing differences in price levels. The economic theory behind PPP is simple and intuitive. Nevertheless PPP is not supported empirically. Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 3.1. Rogoff et al. (1996): The Purchasing Power Parity Puzzle, Journal of Economic Literature, 34(2), 647-668. Taylor et al. (2004): The Purchasing Power Parity Debate, Journal of Economic Perspectives, 18(4), 135-158.
International Financial Markets
Topics 4. Forecasting Exchange Rates - The Monetary Model Changes in the exchange rate have a big influence on the economy and therefore exchange rate forecasting plays a crucial role for many economic decisions. However, experience shows that the right determination of the future exchange rate is difficult to accomplish and there exist a variety of methods to fulfill this task. The Monetary approach to forecasting exchange rates is likely the most prominent one. But what does the evidence of the monetary model regarding exchange rate determination suggest? Is it a useful method? Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 3. Frenkel (1976): A monetary approach to the exchange rate: Doctrinal Aspects and Empirical Evidenc, Scandinavian Journal of Economics, 1976, 78(2), pp. 200-24. Meese and Rogoff (1983): Empirical Exchange Rate Models of the Seventies: Do they Fit Out-Of-Sample? Journal of International Economics, 14:3 24. International Financial Markets
Topics 5. Gains from Financial Globalization 1: Consumption Smoothing Financial Globalization, in theory, can promote financial development via an increased amount of available capital. This, in turn, allows countries to better smooth consumption. However, how well is this potential benefit realized in reality? Is there a difference between advanced and emerging economies? The empirical evidence shows a mixed picture. Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 6.2. Cochrane (1991) : A simple test of consumption insurance, Journal of Political Economcy, Vol. 99, No. 5, pp. 957-76. Mace (1991): Full Insurance in the Presence of Aggregate Uncertainty, Journal of Political Economy, Vol. 99, pp. 928-56.
International Financial Markets
Topics 6. Gains from Financial Globalization 2: International Risk Sharing Financial Globalization has improved the financial infrastructure and mitigates information asymmetries. Thus diversification of risk seems to be a good method for countries to insure against risk in terms of output shocks. How does international risk sharing work in theory and what does reality suggest? Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 6.4. Obstfeld (1994): Are industrial-country consumption risks globally diversified?, L. Leiderman, A. Razin (Eds.), Capital Mobility: The impact of Consumption, Investment and Growth, Cambridge University Press, New York (1994), pp. 13-47. Lewis (1996): What can explain the lack of international risk sharing?, Journal of Political Economy, Vol. 104, No.2, pp.267-297. International Financial Markets
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7. The Theory of Optimum Currency Areas in the Case of the Eurozone Since the introduction of the Euro a further step has been taken in the direction of a fully integrated market. The theory of Optimum Currency Areas (OCAs) deals with the optimal size for a common currency area. What are the criteria for an OCA? Does the EU fulfill these criteria? Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 10. Mundell (1961): The Theory of Optimal Currency Areas, American Economic Review 1961. Kenen (1969): The Theory of Optimum Currency Areas: An Eclectic View, in Mundell and Swoboda (eds.), Monetary Problems in the International Economy, University of Chicago Press, Chicago.
International Financial Markets
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8. Exchange Rate Crises Exchange rate crises have become quite a common occurrence. But what exactly is an exchange rate crisis and what causes such an event? What are the consequences? Feenstra and Taylor (2014): International Macroeconomics, 3rd Edition, chapter 9. Frankel And Rose (1996): Currency Crashes in Emerging Markets: An Empirical Treatment, Journal of International Economics, 41(3-4) 351-366. Krugman (1979): A Model of balance of payments crisis, Journal of Money, Credit and Banking 11: pp. 311-325. Obstfeld (1994): The logic of currency crises, Cahiers Economiques et Monetaires 43, 189-213.
International Financial Markets
Formal Requirements General Choose 3 topics (preference order) and send an e-mail to (
[email protected]) until October 23, 2016 Written paper (about 15 pages without appendix) The appendix may contain formal arguments omitted from the text or additional tables and figures. The appendix should not contain parts substantial for an (intuitive) understanding of your arguments. Margin: about 2.5 cm each Font size: 11 pt (for Arial) or 12 pt (for Times New Roman) Line spacing: 1.5 Send your paper in a PDF file and hand in one hard copy
Oral presentation (approx. 20 minutes) 6 Credits
International Financial Markets
Formal Requirements
Dates Stud.IP registration: register on Stud.IP until October 16, 2016 Preliminary meeting: October 17, 2016 at 6 pm (sharp) in oeconomicum 1.165 Registration FlexNow: October 25 - 28, 2016 Paper deadline: January 23, 2017 (Oec., room 2.154, 8 - 12 am) Presentations: Jan. 24 (8 am - noon), Jan. 25 (8 am - 11 am), Jan. 27 (8 am - 12 noon), Jan. 27 (1 pm - 4 pm)
International Financial Markets
The Seminar Paper Dos
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Review the academic literature (you may use e.g. google scholar, econbiz etc.)
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In case of formal questions refer to the guideline by the chair of Prof. Ohr (available on the homepage of the chair of empiricial international economics)
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Use your own words!
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All thoughts and expressions other than your own need to be quoted correctly (either with footnotes or as done internationally directly in the text)
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Focus on your research question
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We provide a LATEX-template on our homepage
Please have a look at the rules for a good presentation on the homepage of the chair of empirical international economics! International Financial Markets
The Seminar Paper
Some words on citations
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refer to the exact pages from which you took the argument
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for guidance see how authors cite in papers published in major journals (i.e. American Economic Review, Quarterly Journal of Economics, Econometrica, etc.)
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All literature cited in the text must be listed in the references
International Financial Markets
The Seminar Paper
General Structure
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Cover page
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Table of contents
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Table of figures and tables (when applicable)
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Text
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References
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Appendix (when applicable)
International Financial Markets
