376 pages, published in 2001
Nelson C. Mark
International Macroeconomics and Finance book PDF free download
This book grew out of my lecture notes for a graduate course in international macroeconomics and finance that I teach at the Ohio State University. The book is targeted towards second year graduate students in a Ph.D. program. The material is accessible to those who have completed core courses in statistics, econometrics, and macroeconomic theory typically taken in the first year of graduate study.
These days, there is a high level of interaction between empirical and theoretical research. This book reflects this healthy development by integrating both theoretical and empirical issues. The theory is introduced by developing the canonical model in a topic area and then its predictions are evaluated quantitatively. Both the calibration method and standard econometric methods are covered. In many of the empirical applications, I have updated the data sets from the original studies and have re-done the calculations using the Gauss programming language. The data and Gauss programs will be available for downloading from my website: www.econ.ohio-state.edu/Mark.
There are several different ëcampsí in international macroeconomics and finance. One of the major divisions is between the use of ad hoc and optimizing models. The academic research frontier stresses the theoretical rigor and internal consistency of fully articulated general equilibrium models with optimizing agents. However, the ad hoc models that predate optimizing models are still used in policy analysis and evidently still have something useful to say. The book strikes a middle ground by providing coverage of both types of models.
Some of the other divisions in the field are flexible price versus sticky price models, rationality versus irrationality, and calibration versus sta- tistical inference. The book gives consideration to each of these ëmini debates.í Each approach has its good points and its bad points. Al- though many people feel firmly about the particular way that research in the field should be done, I believe that beginning students should see a balanced treatment of the different views.
Hereís a brief outline of what is to come. Chapter 1 derives some basic relations and gives some institutional background on international financial markets, national income and balance of payments accounts, and central bank operations.
Chapter 2 collects many of the time-series techniques that we draw upon. It is not necessary work through this chapter carefully in the first reading. I would suggest that you skim the chapter and make note of the contents, then refer back to the relevant sections when the need arises. This chapter keeps the book reasonably self-contained and provides an efficient reference with uniform notation.
Many different time-series techniques have been implemented in the literature and treatments of the various methods are scattered across different textbooks and journal articles. It would be really unkind to send you to multiple outside sources and require you to invest in new notation to acquire the background on these techniques. Such a strategy seems to me expensive in time and money. While this material is not central to international macroeconomics and finance, I was convinced not to place this stuff in an appendix by feedback from my own students. They liked having this material early on for three reasons. First, they said that people often donít read appendices; second, they said that they liked seeing an econometric roadmap of what was to come; and third, they said that in terms of reference, it is easier to flip pages towards the front of a book than it is to flip to the end.
Moving on, Chapters 3 through 5 cover ëflexible priceí models. We begin with the ad hoc monetary model and progress to dynamic equilib- rium models with optimizing agents. These models offer limited scope for policy interventions because they are set in a perfect world with no market imperfections and no nominal rigidities. However, they serve as a useful benchmark against which to measure refinements and progress.
The next two chapters are devoted to understanding two anomalies in international macroeconomics and finance. Chapters 6 covers deviations from uncovered interest parity (a.k.a. the forward-premium bias), and Chapter 7 covers deviations from purchasing-power parity. Both topics have been the focus of a tremendous amount of empirical work.
Chapters 8 and 9 cover ësticky-priceí models. Again, we begin with ad hoc versions, this time the MundellóFleming model, then progress to dynamic equilibrium models with optimizing agents. The models in these chapters do suggest positive roles for policy interventions because they are set in imperfectly competitive environments with nominal rigidities.