Applied Macro and International Economics II 2016 Syllabus

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Randall Davidson
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1 Applied Macro and International Economics II 2016 Syllabus This course is the continuation of (and if you are a Sloan Fellow). The course is divided in three distinct sections. The first one addresses questions of sustainability from a macroeconomic point of view. I discuss a framework called PROMISE (I am still designing it ) The underlying problem is how can standards of living be improved in a sustainable manner. In this context, sustainability has more than one dimension: (i) obviously sustainability from the environmental and resource use; but also from (ii) social and political; (iii) institutions; (iv) financial and markets; (v) organizations; (vi) relations; (vii) and personal. Growth in standards of living and social wellbeing needs all dimensions to be internally consistent. For example, it makes no sense to grow the economy if that is inconsistent with the environment, nor if it is inconsistent with personal aspirations. We develop a framework where we can study the interactions between all these dimensions and study each dimension in particular. We will use my class notes to develop this framework. The second part of the course deals with economic policy. Having understood what economies need to do, then the next step is to consider how those actions can be implemented. Questions such as: How to deal with problems and conflicts that arises from international trade? How to deal with corruption and its economic impact? What are the problems of poverty and income distribution? In fact, what are the implications of the actual programs dealing with poverty in different countries and their impact on the environment? How can we design social security systems that are viable? What about health care systems? How to solve the problems of public choice, public goods, externalities, etc.? We will devote a fair amount of time to understand the international and macroeconomic implications of these issues. And how the solutions differ across the globe (and why they differ). In most of the problems highlighted there are welfare gains that can be generated, although they will be rarely fairly distributed among the population. To understand these problems we will rely heavily on simulations, games, and cases. The last part of the course talks about how technology is changing the macro economy. I will pay attention to three main issues: how technology is changing currencies (cryptocurrencies), how technology is changing the banking and payment system, and how technology is affecting the way statistical offices work (very related to my research with Alberto Cavallo on the Billion Prices Project). Most of the readings are from three sources: my class notes (MIM) Managerial International Macroeconomics, from (FT) Feenstra and Taylor s International Economics book, and from (JG) Jonathan Gruber s Public Finance Book. Prerequisites: you must have before take this class if you are an MBA. No exceptions! If you are a Sloan Fellow and you were enrolled in you have the prerequisite. Important, we will use notes that I have been writing. The chapters will be available as we go along...

2 Evaluation The course is a combination of lectures, simulation exercises and cases. The grade is entirely driven by case write-ups. For each case I ll have some questions that I want to be addressed before class. If the case has no question assigned then no case write-up is required. You have to have a write up for EVERY case that has a question. You should work in teams of two or three no more than that. You HAVE to send the case write-up before the class to the TA. The subject needs to say case #. Where # is the number of the case. The questions address aspects of the case that need further analysis. Every question should be answered (at most) in one page, except for the Argentina case (which will need 3 pages, one for each of the events you have chosen). You DO NOT NEED more than a page. There will be a TA exclusively devoted to grading. Everything else I will address directly. Contact Information Professor Roberto Rigobon Office: E rigobon@mit.edu Office Hours: By appointment Teaching Assistant (only for grading) Section A: Section B: Guillermo Marx gmarx@mit.edu Sebastian Cubela scubela@mit.edu Communication Please, use s! And very important, in the subject please put I receive hundreds of a day and I have a special filter in the when I deal with this course. This will maximize the likelihood that I read your !

3 Class Schedule Class Date Section Tittle Case # Case Tittle 1 3/28/16 M BBNN PROMISE 2 3/30/16 W BBNN: Internal and External Adjustment 3 4/1/16 F Adjustment: Active Policy and Automatic HBS Japan: Betting on Inflation? 4 4/4/16 M External Account Measurement HBS U.S. Current Account Deficit 5 4/6/16 W Shocks to BB and NN 6 4/8/16 F Social Peace Line and Political Cycles HBS Menem and the Populist Tradition in Argentina 7 4/11/16 M Environmental Restriction Line 8 4/13/16 W TRADE Comparative Advantages: Trade and Conflict 9 4/15/16 F Offshoring Exercise HBS New Theories of International Trade 10 4/18/16 M Patriots Day (No Class) 11 4/20/16 W ECONOMIC POLICY Fish Banks and Pareto Efficiency 12 4/22/16 F Market Faillure: Natural Monopolies: Natural Resources 13 4/25/16 M Market Faillure: Crime, Corruption, and Institutions HBP BEP076 Managerial Economics- Concepts and Principles 8-Market Regulation 14 4/27/16 W Market Faillure: Public Goods: Social Security Kellog KEL493 Reforming Social Security Around the World 15 4/29/16 F Market Faillure: Public Choice: Democracy 16 5/2/16 M Market Faillure: Externalities: Lobsters and Taxes Darden UV5687 A Framework to Think About Pollution 17 5/4/16 W Market Faillure: Unaceptable Outcomes: Poverty and Inequality 18 5/6/16 F NEW TECHNOLOGIES New Technologies: Cryptocurrencies 19 5/9/16 M New Technologies: Payment Systems 20 5/11/16 W New Technologies: Economic Measurement 21 5/13/16 F Optional Life through Others

4 Assignments and Required Readings Class Date Readings or Videos Case Questions 1 3/28/16 2 3/30/16 (RR): BBNN: Basic 3 4/1/16 4 4/4/16 5 4/6/16 (RR): BBNN: Shocks 6 4/8/16 (RR): BBNN: Social Peace 7 4/11/16 (RR): BBNN: Sustainability 8 4/13/16 (RR): Trade: Comparative Advantages 9 4/15/ /18/ /20/ /22/ /25/ /27/16 (JG): Public Goods: Problems and Solutions (Chapter 7) 15 4/29/16 (JG): Implementing Public Goods: Political Economy and Public Choice (Chapter 9) 16 5/2/16 (JG): Externalities: Problems and Solutions (Chapter 5) 17 5/4/16 Articles: Krugman on Piketty: Solow on Piketty: Summers on Piketty: /6/16 Video: /9/ /11/ /13/16 Video: Is the US sustainable? Find in trading economics the CA and Wage changes in any of the last three years and do a BBNN diagnostic! Explain 3 events from the case (such as devaluations, policy choices, growth, change in export prices, etc.). Do the diagnostic, and explain the impact using the BBNN. Should UK remain in the European Union? What are the advantages of Protection? Answer for one country only: How would you change the social security system in (US, France, or Japan)? Comment the following Statement: Carbon Tax Markets have the chance to solve the property rights problem that exists in CO2 emisions In one page! What is the solution to the problem of income inequality in a developed nation?

5 Recommended Readings Class Date Additional Readings 1 3/28/16 2 3/30/16 3 4/1/16 4 4/4/16 (FT): National and International Accounts (Chapter 16) 5 4/6/16 6 4/8/16 7 4/11/16 8 4/13/16 (FT): Trade and Technology: The Ricardian Model (Chapter 2) 9 4/15/ /18/ /20/ /22/16 (RR): Preliminaries on Public Finance 13 4/25/ /27/16 (JG): Social Security (Chapter 13) 15 4/29/ /2/16 (JG): Externalities in Action: Environmental and Health Externalities (Chapter 6) 17 5/4/16 (JG): Chapters 12 and /6/ /9/ /11/ /13/16

Applied Macro and International Economics II Syllabus

Applied Macro and International Economics II 15.014 2018 Syllabus This course is the continuation of 15.012 (and 15.015 if you are a Sloan Fellow). The course is divided in three distinct sections. The