Professor: Andrés Neumeyer (pan@utdt.edu)

Schedule. Tuesdays and Thursdays: 2:00-3:20pm

Room: Virtual classroom until January 25th
SHFE 141 thereafter

Student Evaluation

• Class presentations and participation (30%)

• Term paper (70%)

Goals and Description

The goal of this course is to illustrate the power of macroeconomic theory to interpret the economic history of several countries in Latin America. Students will learn classic theories on the monetary and fiscal aspects of inflation. Empowered by these macroeconomic foundations we all analyze different types of multiple equilibria that give rise to vulnerabilities to speculative attacks on fixed exchange rates, interest rates pegs, and public debt. Students will write papers using the models discussed in class to explain the inflation experience of a country (not necessarily in Latin America) or a particular episode of a financial crisis.

Plan

We will allocate the first half of the quarter to learn models of macroeconomic crises and in the second half, students will present the case of a particular Latin American country drawn from the Becker-Friedman Institute project The Monetary and Fiscal History of Latin America.

The following is a tentative class schedule that might change according to the interest of the students.

1. Introduction The current account and short-term capital flows in a small open economy. Download.

2. Equilibrium in an economy with non-traded goods. The real exchange rates. Download

   • Readings: Obstfeld Rogoff Cap 1 y 2.

3. Monetary and fiscal theories of inflation. Download

   • Ljungqvist, Sargent, Recursive Macroeconomic Theory, The MIT Press. Chapter 27. Fiscal-Monetary Theories of Inflation.

4. Exchange Rate Regimes, Capital Controls, and Speculative Attacks on Fixed Exchange Rates. Download.

   • Calvo, Guillermo A. “Balance of Payments Crises in a Cash-in-Advance Economy.” Journal of Money, Credit and Banking 19, no. 1 (1987): 19–32.

   • Burnside, Craig, Martin Eichenbaum, and Sergio Rebelo. “Prospective Deficits and the Asian Currency Crisis.” Journal of Political Economy 109, no. 6 (2001): 1155–97.

   • Emilio Espino, Pablo E. Guidotti, P. Andrés Neumeyer, A Model of Balance of Payments Crisis under Capital Controls, 2021. (Slides).

   • Maurice Obstfeld, Capital Controls, Dual Exchange Rate and Devaluation, Journal of International Economics, 1986. PDFThe Friedman Rule and the time-consistency of monetary policy.

5. Self-fulfulling prophecies: default expectations and the cost of servicing the public debt.

   • Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September. Slides

   • Ayres, João & Navarro, Gaston & Nicolini, Juan Pablo & Teles, Pedro, 2018. "Sovereign default: The role of expectations," Journal of Economic Theory, Elsevier, vol. 175(C), pages 803-812. Slides

6. Speculative runs on the public debt. Liquidity crises and rollover risk.

   • Cole, Harold L and Kehoe, Timothy J, 2000. "Self-Fulfilling Debt Crises," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 91-116, January. Slides (Mexico)

   • Cole, Harold L. and Kehoe, Timothy J., 1996. "A self-fulfilling model of Mexico's 1994-1995 debt crisis," Journal of International Economics, Elsevier, vol. 41(3-4), pages 309-330, November

7. Speculative attacks on interest rate pegs.

   • Bassetto, Marco & Phelan, Christopher, 2015. "Speculative runs on interest rate pegs," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 99-114. Slides.

Textbooks

• Lars Ljungqvist & Thomas J. Sargent, 2000. "Recursive Macroeconomic Theory, MIT Press Books, The MIT Press.

• Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press

• P. Andrés Neumeyer, Economia Monetaria Internacional, Universidad Torcuato Di Tella, 2010. Ver Bajar

• Martín Uribe y Stephanie Schmitt-Grohé, Open Economy Macroeconomics, Columbia University, 2012/4

• Timothy J. Kehoe and Juan Pablo Nicolini (eds), 2021. A Monetary and Fiscal History of Latin America, 1960—2017, University of Minnesota Press. (Becker-Friedman Institute site)