1. Semester: III/IV
2. Number of credits: 4

Preamble
The course deals largely with the relatively more recent developments in the field of international finance through a macroeconomic model-based approach. It begins though, in Module 1, with the more traditional open-economy models, as a backdrop to the subsequent analysis. The emphasis throughout is on rigour including the application of inter-temporal general equilibrium models based on utility/ profit maximization, in Units 2 to 4. this will be combined with approaches that yield insights in models that, though rigourous, are not micro-founded. The teaching will rely largely on the use of Obstfeld and Rogoff (1999) supplemented by Rodseth (2000)

1. Traditional Open-Economy Models (12 sessions)
Open-economy monetary models with minimal structure, Mundell-Fleming-Dornbusch and Mundell-Fleming-Tobin models, Models with traded and non-traded goods, Scandinavian model of inflation

2. The Basic Inter-temporal Approach to BOP Analysis (12 sessions)
Basic ideas in a two-period endowment economy and a two-region world economy, Extension to a multi-period small economy, stochastic current account model, Government budget deficits and the current account, Feldstein-Horihoka S-I puzzle

3. Stochastic Models of International Capital Flows and Asset Prices
Trade across random states of nature in a small two-period open economy, Generalization of the model to the world setting, International portfolio diversification, CAPM, Sovereign risk

4. Money and Exchange Rate Regimes (12 sessions)
Monetary exchange rate models with maximizing individuals, Nominal exchange rate regimes, Speculative attacks and fixed exchange rate regimes, Target zones for exchange rates, Stochastic global general equilibrium model with nominal assets, Determination of forward foreign exchange premium