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International Macroeconomics (ECO-AD-INTMACECO)


Department ECO
Course category ECO Advanced courses
Course type Course
Academic year 2023-2024
Term BLOCK 4
Credits 1 (EUI Economics Department)
Contact Simonsen, Sarah


Professor: Giancarlo Corsetti (email: [email protected]

Course Description
The primary goal of this course is to provide the foundations of the core general equilibrium models of the international business cycles and the international financial system. Building on this core model, the lectures will introduce students to frontier theoretical and empirical work on trade, market structure, macroeconomics of capital market integration, sovereign risk and macroeconomic and monetary stability. Students will be assessed on an assignment requiring some analytical and/or quantitative work; and
a referee report on a paper requiring them to map the contribution in the literature, discuss methodology and identify open issues. The website includes math-lab code for some of the models. Course readings will be provided during lectures. Standard reference books are Open Economy Macroeconomics (henceforth, OEM) by Martin Uribe and Stephanie Schmitt-Grohe and Foundations of International Macroeconomics by Kenneth Rogoff and Maurice Obstfeld.

1 Equilibrium models of the international business cycle
1. International business cycle and the international financial system: Stylized facts

2. Real exchange rates, income and capital ows with complete and incomplete asset markets
(a) The core model is steps: Endowment, production without capital, Investment
(b) Sectoral adjustment: tradable/non-tradables, comparative advantage

3. Macroeconomics of capital market integration
(a) Financial frictions, misalignment and demand imbalances
(b) Disaster risk: asset prices, wealth and gains from ecient risk sharing

Corsetti, G., L. Dedola, and S. Leduc. 2008. \International Risk Sharing and the Transmission of
Productivity Shocks," Review of Economic Studies, 75(2), 443-473.
Heathcote, J., F. Perri. 2013. \The International Diversification Puzzle Is Not As Bad As You
Think," Journal of Political Economy, 121 (6), 1108-1159.

2 Exchange rates and prices
1. Trade elasticities, markups and market structure
(a) Monopolistic competition with vertical interactions; oligopolistic competition
(b) Strategic complementarity and the local currency price stability of imports

2. Invoicing and pricing to market
(a) Empirical evidence
(b) Producer, Local and Dominant Currency Pricing

Atkeson, Andrew, and Ariel Burstein. 2008. \Pricing-to-Market, Trade Costs, and International Relative Prices." The American Economic Review, 98(5): 1998? 2031.
Burstein, Ariel, and Gita Gopinath. 2014. \International Prices and Exchange Rates." Handbook of International Economics, 4: 391?451.
Corsetti, G., L. Dedola. 2005 \A Macroeconomic Model of International Price Discrimination", Journal of International Economics, 67 (1), 129-155.

3 Monetary Stabilization
1. The monetary \workhorse" New Keynesian model: natural rate properties

2. Stabilization policy
(a) Deriving loss functions with internal and external objectives; open economy Phillips Curve
and targeting rules
(b) Gains from monetary policy cooperation

Corsetti G, L. Dedola and S. Leduc, Optimal monetary policy in open economies, in the Handbook of Monetary Economics, vol. III, Edited by Ben Friedman and Michael Woodford, 2010.
Gopinath, Gita, Emine Boz, Camila Casas, Federico J Diez, Pierre-Olivier Gourinchas, and Mikkel Plagborg-Moller. 2020. \Dominant Currency Paradigm." American Economic Review, 110(3): 677-719.

4 Sovereign risk, currency and macroeconomic stability
1. Krugman 1979 redux: a FTPL model of currency and price stability
2. Belief-driven crises: the Calvo 1988 Model
3. The monetary backstop of government debt

Corsetti G. and F. Maeng (2020). \Debt Crises. Fast and Slow". mimeo
Lorenzoni, G. and I. Werning (2019). \Slow Moving Debt Crises". American Economic Review 109
(9), 3229-3263.

5 International nancial intermediation and vehicle currencies
Xavier Gabaix and Matteo Maggiori. \International Liquidity and Exchange Rate Dynamics". In:
Quarterly Journal of Economics 130.3 (2015), pp. 1369?1420.



List of topics (not all covered)

  • Introduction and benchmark market structure and models (monopoly, oligopoly).
  • Product differentiation
  • Price discrimination
  • Collusion
  • Entry
  • Innovation, R&D and patents
  • Contracts and competition
  • Privacy policies
  • Platforms
  • Competition policy
  • Models of banks competition
You are expected to be familiar with the material covered in the 1st year sequence of microeconomics.

Teaching method.
There will be 10-14 lectures and students’ presentations.

Examination policy.
The grading will be based on a class presentation of a paper with a written referee report and a research proposal. Two modes are available: presentation-mode involves the following weights 60% presentation and report 40% research proposal; research-mode 40% presentation and report 60% research proposal.

Reading material.
A very useful evergreen is The Theory of Industrial Organization (1988). Jean Tirole. MIT Press. For some topics also Industrial Organization: Markets and Strategies (2010). P. Belleflamme and M. Peitz. Cambridge University Press. Other material will be handed out during classes.

Register for this course

Page last updated on 05 September 2023

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