International Macroeconomics and Finance: Theory and Econometric Methods

Nelson Mark063122288X, 9780631222880, 0631222871, 9780631222873

This short, concrete, and to-the-point book guides students through this vast field of conflicting opinions. The book begins with the premise that students benefit most from seeing a balanced treatment of all available views. For instance, it provides coverage of both ad hoc and optimizing models and also explores divisions such as flexible price versus sticky price models, rationality versus irrationality, and calibration versus statistical inference. By giving consideration to each of these “mini debates,” this book shows how each approach has its good and bad points.International Macroeconomics and Finance also excels in its integration of theoretical and empirical issues: the theory is introduced by developing the canonical model in a topic area and then its predictions are evaluated quantitatively. Bot the calibration method and standard econometric methods are covered. To avoid the “black-box” perception that students sometimes develop, almost all of the results presented here are derived step-by-step from first principles. A conversational, logical presentation also makes this a supreme learning tool.

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Table of contents :
Preface……Page 3
Contents……Page 6
Some Institutional Background……Page 9
Foreign Exchange……Page 10
Covered Interest Parity……Page 12
Uncovered Interest Parity……Page 17
Futures Contracts……Page 20
National Income Accounting……Page 23
The Balance of Payments……Page 26
1.3 The Central Bank’s Balance Sheet……Page 28
Some Useful Time-Series Methods……Page 31
2.1 Unrestricted Vector Autoregressions……Page 32
Lag-Length Determination……Page 33
The Vector Moving-Average Representation……Page 34
Impulse Response Analysis……Page 35
Forecast-Error Variance Decomposition……Page 37
Potential Pitfalls of Unrestricted VARs……Page 39
2.2 Generalized Method of Moments……Page 43
2.3 Simulated Method of Moments……Page 46
2.4 Unit Roots……Page 48
tion……Page 54
2.5 Panel Unit-Root Tests……Page 58
The Levin—Lin Test……Page 60
The Im, Pesaran and Shin Test……Page 67
The Maddala and Wu Test……Page 68
Potential Pitfalls of Panel Unit-Root Tests……Page 70
2.6 Cointegration……Page 71
The Vector Error-Correction Representation……Page 72
2.7 Filtering……Page 75
The Spectral Representation of a Time Series……Page 76
Linear Filters……Page 82
The Hodrick—Prescott Filter……Page 83
The Monetary Model……Page 87
Cassel’s Approach……Page 88
The Commodity-Arbitrage Approach……Page 90
of Payments……Page 91
Exchange Rates……Page 92
ity……Page 96
MacDonald and Taylor’s Test……Page 99
Panel Data……Page 103
Problems……Page 111
The Lucas Model……Page 113
4.1 The Barter Economy……Page 114
4.2 The One-Money Monetary Economy……Page 121
4.3 The Two-Money Monetary Economy……Page 126
4.4 Introduction to the Calibration Method……Page 133
4.5 Calibrating the Lucas Model……Page 134
Appendix—Markov Chains……Page 142
Problems……Page 144
International Real Business Cycles……Page 145
Measurement……Page 146
5.2 Calibrating a Two-Country Model……Page 157
The Two-Country Model……Page 158
Simulating the Two-Country Model……Page 166
Foreign Exchange Market Effciency……Page 169
6.1 Deviations From UIP……Page 170
Hansen and Hodrick’s Tests of UIP……Page 171
Fama Decomposition Regressions……Page 175
Estimating pt……Page 178
6.2 Rational Risk Premia……Page 180
6.3 Testing Euler Equations……Page 185
Volatility Bounds……Page 187
6.4 Apparent Violations of Rationality……Page 191
6.5 The ‘Peso Problem’……Page 194
Lewis’s ‘Peso-Problem’ with Bayesian Learning……Page 196
6.6 Noise-Traders……Page 201
Problems……Page 211
The Real Exchange Rate……Page 215
7.1 Some Preliminary Issues……Page 216
7.2 Deviations from the Law-Of-One Price……Page 217
Exchange Rate……Page 221
The Balassa—Samuelson Model……Page 222
Rates……Page 225
Size Distortion in Unit-Root Tests……Page 234
Problems……Page 236
8.1 A Static Mundell-Fleming Model……Page 237
Model……Page 245
Exchange rate dynamics……Page 247
8.3 A Stochastic Mundell—Fleming Model……Page 249
The Eichenbaum and Evans VAR……Page 257
Clarida-Gali Structural VAR……Page 259
Appendix: Solving the Dornbusch Model……Page 265
Problems……Page 269
The New International Macroeconomics……Page 271
9.1 The Redux Model……Page 272
Full Pricing-To-Market……Page 294
Problems……Page 312
Target-Zone Models……Page 315
10.1 Fundamentals of Stochastic Calculus……Page 316
Ito’s Lemma……Page 317
10.2 The Continuous—Time Monetary Model……Page 318
10.3 InÞnitesimal Marginal Intervention……Page 321
Estimating and Testing the Krugman Model……Page 325
10.4 Discrete Intervention……Page 327
10.5 Eventual Collapse……Page 328
10.6 Imperfect Target-Zone Credibility……Page 330
Balance of Payments Crises……Page 335
11.1 A First-Generation Model……Page 336
Flood—Garber Deterministic Crises……Page 337
A stochasticÞrst-generation model…….Page 340
11.2 A Second Generation Model……Page 343
Obstfeld’s Multiple Devaluation Threshold Model……Page 344
Bibliography……Page 353
C E……Page 365
BookmarkTitle:……Page 0
I……Page 366
R……Page 367
B……Page 368
E……Page 369
H……Page 370
J……Page 371
O……Page 372
R……Page 373
S……Page 374
V……Page 375
W……Page 376