International Economics (MWiWi 2.8)

Course Information

This course uses a mix of theoretical, empirical, and policy frameworks to analyze problems in international finance and macroeconomics. We investigate the determination of the current account, capital flows, international borrowing and lending, the relation of goods prices across countries, interest-rate differentials, the determination of exchange rates, and fiscal and monetary policy in open economies. One emphasis will be on business cycles in open economies. Recent issues such as the crisis in the Euro area, the sustainability of government debt, and sovereign default receive attention. We follow a decision-theoretic approach based on microeconomic behavior that allows us to identify the frictions that explain empirically observed phenomena. Throughout, we have in mind the empirical relevance of the various concepts.

Course Prerequisites

Formally none. Students should have taken an intermediate macroeconomics and microeconomics course. Knowledge of univariate calculus and basic statistics will be assumed. All mathematical and statistical tools needed for this course will be reviewed. MWiWi 2.13 Advanced Microeconomics and Public Finance and MWiWi 4.2 Applied Econometrics are recommended.

Time and Venue

Lecture: Mon, 12-14, M.14.25

Lecture: Wed, 10-12, N.11.16

Tutorial: Wed, 12-14, N.11.16

First meeting: Wed, April 11, 2018

Seminar in International Economics - Incomplete Markets and Household Heterogeneity (MWiWi 6)

Course Information

In an environment with complete markets, some sources of heterogeneity may become irrelevant as the economy may aggregate so that distributional aspects, e.g. wealth inequality, do not matter. Yet, market completeness seems implausible a priori as a literal description of the world.

In this seminar, we consider the standard heterogeneous-agents incomplete-markets model (SIM), which has become the workhorse for studying heterogeneity across people in quantitative economics. The SIM starts from an explicit micro model of heterogeneous household’s behavior, possibly combined with a general equilibrium model, and accounts for heterogeneous impact of policies across the population. Example applications are: Dynamics of inequality, welfare costs of inflation, risk-sharing benefits of social security systems, unemployment insurance, insurance within the family, sovereign default and bond prices, or private default. The main building block of the SIM is the problem of characterizing the optimal consumption/savings sequence for a household facing stochastic income fluctuations (idiosyncratic uncertainty). Accordingly, we will start with numerical examples for the consumption/savings problem and then proceed.

The SIM can be solved using Dynamic Programming, which is a technique to analyze a whole class of models in which the problems faced by economic agents have a recursive structure. Recursive problems pervade in economics as agents face repeated decision problems. The course offers an intuitive introduction to Dynamic Programming and also covers selected numerical tools for getting started with programming in MATLAB.

Outline (preliminary)

Didactical foundations:

Scientific techniques (learn rules and requirements for reading and writing scientific documents)
Introduction to LaTeX (software for writing scientific documents and for creating presentation slides; will be used for writing the seminar thesis)

Foundations in Quantitative Economics:

Introduction to MATLAB (software for quantitative economics)
Numerical tools (mostly in the form of exercises to get started with programming in MATLAB)
Introduction to dynamic programming (deterministic and stochastic; needed for the SIM)

Incomplete Markets and Household Heterogeneity

Consumption/savings problem
Solving the SIM
Applications (from various fields)

Building on these Mini-Lectures, students choose a topic closely related to the Mini-Lectures, write a seminar thesis (supervised by our team) and present their results at the end of the semester. Both theoretical as well as empirical topics are welcome (the SIM motivates the empirical analysis of a wide range of dimensions of household heterogeneity, e.g., on the labor market, or on financial markets). Each topic is based on a research article published in an established economics journal, a working paper, or an advanced textbook.

Own programming is appreciated, but not required. Previous knowledge of MATLAB or other programming experiences are not required.

The seminar is open to Ph.D. students.

Course Prerequisites

For master students: MWiMi 2.8: International Economics prior to attending this seminar.

Registration

Registration requires two steps:

Informal registration until April 3, 2017: If you are interested in participating in this seminar, write an email to juessen[at]wiwi.uni-wuppertal.de. If you are informally registered, you can participate in the first meetings and then decide whether you want to participate eventually or not. Thus, you can still withdraw without reason.
Formal registration until May 8, 2017: If you register formally (by signature), you cannot withdraw from the seminar anymore.

Time and Venue

Mon, 16-18, Room M.12.25

First meeting: April 24, 2017