Macroeconomics of the Open Economy

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The "Macroeconomics of Open Economy" course addresses topics concerning the macroeconomics of an economy interconnected with the global economy through various economic relationships.

The course includes lectures that introduce fundamental concepts and theories, supplemented with empirical examples. Tutorial classes enhance the lectures by helping students reinforce their knowledge, apply it to empirical cases, and develop analytical skills related to the material. Students are expected to have a solid understanding of Macroeconomics II and basic Microeconomics. The course concludes with a written exam comprising open-ended and test questions. The final grade is based on a weighted average of points from the final exam, tutorial classes, and online assignments.

The course begins with an analysis of the balance of payments structure, its interdependence with other macroeconomic categories, and a review of national income accounting rules in an open economy. Next, it reviews theories addressing the determinants of the balance of payments, starting with the classical model and focusing on the relationship between savings, investment, and current account balances. The course then covers other approaches, including the elasticity, monetary, and multiplier approaches.

The following part of the course examines the foreign exchange market, its institutions, and transactions. Topics include exchange rate exposure and hedging, as well as determinants of exchange rates in the short run (interest rate parity) and long run (purchasing power parity, Balassa-Samuelson effect, and monetary model). The review of exchange rate theories concludes with Dornbusch's overshooting model.

The fourth major thematic area addresses macroeconomic policy in an open economy, analyzed using the IS-LM-BP model under different exchange rate regimes and levels of international capital mobility. The course also explores currency crises, discussing both theoretical approaches and empirical examples from the history of the world financial system.

The fifth thematic area focuses on monetary unions, covering both the theoretical aspects (the theory of optimum currency areas) and the empirical perspective (European experience). The course concludes with a discussion on the history and current state of the international monetary system.

By completing this course, the student will acquire the following elements of knowledge, skills, and attitudes. The student will:

[Knowledge:]

- Understand the structure of the balance of payments and national income accounting in an open economy.

- Grasp the assumptions and predictions of the intertemporal model of the balance of payments.

- Comprehend the functioning mechanisms, actors, and transactions in the international foreign exchange market.

- Understand foreign exchange exposure and methods for hedging against it.

- Know the determinants of exchange rates in the short term (interest rate parity) and long term (purchasing power parity, monetary approach).

- Understand the Balassa-Samuelson effect mechanism.

- Grasp the concept of the real exchange rate and its determinants.

- Know the exchange rate overshooting model.

- Understand the Keynesian (multiplier) approach to the balance of payments under fixed and floating exchange rate regimes.

- Comprehend the assumptions and predictions of the ISLMBP model, analyzing economic policy under different exchange rate regimes and capital mobility conditions.

- Know the major theories explaining currency crises.

- Understand the theory of optimal currency areas and the historical and institutional context of the EMU.

- Know the rules and institutional settings of the international monetary system from historical and contemporary perspectives.

[Skills]

- Record simple examples of transactions in a country's balance of payments.

- Interpret imbalances in the balance of payments and their links with other macroeconomic categories, especially in light of the classical model and intertemporal approach.

- Identify exchange rate exposure and construct simple hedging strategies.

- Predict exchange rate changes based on short- and long-term theories.

- Calculate and interpret changes in the real exchange rate.

- Assess the effectiveness of policies aimed at improving the current account balance through national currency devaluation.

- Draw conclusions about the effects of economic events (shocks) and macroeconomic policies on short-term macroeconomic equilibrium, depending on the exchange rate regime and degree of capital mobility.

[Attitudes]

- Develop self-reliance in applying theoretical knowledge to analyze basic open-economy macroeconomic phenomena, using empirical examples and macroeconomic data sources.

- Attain a higher level of responsibility and self-control by not being required to attend lectures formally.

- Improve work organization due to the requirements imposed during discussion classes.

- Cultivate a deeper interest in issues related to the macroeconomics of an open economy.

- Enhance reliability and honesty through rigorous enforcement of examination requirements for course credit.

KW01, KW002, KW03, KW04, KW05, KU01, KU02, KU03, KU04, KK01, KK02, KK0

By completing this course, the student will acquire the following elements of knowledge, skills, and attitudes. The student will:

[Knowledge:]

- Understand the structure of the balance of payments and national income accounting in an open economy.

- Grasp the assumptions and predictions of the intertemporal model of the balance of payments.

- Comprehend the functioning mechanisms, actors, and transactions in the international foreign exchange market.

- Understand foreign exchange exposure and methods for hedging against it.

- Know the determinants of exchange rates in the short term (interest rate parity) and long term (purchasing power parity, monetary approach).

- Understand the Balassa-Samuelson effect mechanism.

- Grasp the concept of the real exchange rate and its determinants.

- Know the exchange rate overshooting model.

- Understand the Keynesian (multiplier) approach to the balance of payments under fixed and floating exchange rate regimes.

- Comprehend the assumptions and predictions of the ISLMBP model, analyzing economic policy under different exchange rate regimes and capital mobility conditions.

- Know the major theories explaining currency crises.

- Understand the theory of optimal currency areas and the historical and institutional context of the EMU.

- Know the rules and institutional settings of the international monetary system from historical and contemporary perspectives.

[Skills]

- Record simple examples of transactions in a country's balance of payments.

- Interpret imbalances in the balance of payments and their links with other macroeconomic categories, especially in light of the classical model and intertemporal approach.

- Identify exchange rate exposure and construct simple hedging strategies.

- Predict exchange rate changes based on short- and long-term theories.

- Calculate and interpret changes in the real exchange rate.

- Assess the effectiveness of policies aimed at improving the current account balance through national currency devaluation.

- Draw conclusions about the effects of economic events (shocks) and macroeconomic policies on short-term macroeconomic equilibrium, depending on the exchange rate regime and degree of capital mobility.

[Attitudes]

- Develop self-reliance in applying theoretical knowledge to analyze basic open-economy macroeconomic phenomena, using empirical examples and macroeconomic data sources.

- Attain a higher level of responsibility and self-control by not being required to attend lectures formally.

- Improve work organization due to the requirements imposed during discussion classes.

- Cultivate a deeper interest in issues related to the macroeconomics of an open economy.

- Enhance reliability and honesty through rigorous enforcement of examination requirements for course credit.

KW01, KW002, KW03, KW04, KW05, KU01, KU02, KU03, KU04, KK01, KK02, KK0

The course concludes with a written examination consisting of open and test questions. To be eligible to take the exam, students must achieve a positive grade from the tutorial, securing at least 50% of the tutorial score. The final grade for the Open Economy Macro course is based on the total score, calculated as a weighted average of points from three components: the final exam (50%), the tutorial (45%), and online assignments (5%). To pass the course, students must obtain at least 50% of the total score and at least 40% of the exam score.