Chapter_12 - ECMC61 International Economics Finance...

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ECMC61 – International Economics: Finance Introduction International finance is a study of problems and policies of an open economy. International finance studies the issues like unemployment, savings, trade imbalances, money and price levels (include exchange rates). Organization of the course 1) Introduction – chapter 12 2) Interest rate parity (how exchange rate is determined by the flows of capital) and exchange rate overshooting – chapters 13 & 14 3) Purchasing power parity and the exchange rate in the long run (how exchange rate is determined by the flows of goods and the determinants of exchange rate in the long run) – chapter 15 4) The DD-AA model (the model that explains how exchange rate and output are determined in general equilibrium setting) – chapters 16 &17 Flexible exchange rate – chapter 16 Fixed exchange rate – chapter 17 5) International macroeconomic policy – chapters 19 & 20 Arguments for and against flexible exchange rates – chapter 19 Interdependence of macroeconomic policies – chapter 19 Arguments for and against common currency – chapter 20 ECMC61 – Chapter 12 1
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Chapter 12: National Income Accounting and the Balance of Payments The National Income Identity for an Open Economy The national income identity for an open economy is: A country’s current account (CA) balance shows the difference between exports of goods and services and imports of goods and services, plus net unilateral transfer.
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