International Economics (Cancelled for 2023-2024)

International interdependencies have long been important for economic policy, and globalization has further strengthened that relevance. This holds not only for small open economies, such as the Netherlands, but also for Europe and worldwide. This course provides basic insights based on micro foundations to better understand such interdependencies, both from a theoretical and empirical viewpoint. The course covers international trade as well as international finance.

The international trade part starts with a discussion of modern quantitative trade models, focusing on their implication for welfare in different countries as well as that of heterogeneous firms within a country. The last session then focusses on how to assess the models’ welfare implications in the data. We discuss influential empirical papers that study not only the aggregate welfare effects of trade, but that also highlight the importance of considering the distributional consequences of trade
within a country.

The international finance part of the course starts from the view of the current account as a vehicle for intertemporal trade, driven by optimizing behavior of agents, which helps to analyze topics such as global imbalances and sustainability of foreign debt. We also discuss interest rate parities, floating nominal exchange rates, speculative attacks on fixed rates, sticky prices and exchange rate
volatility, quantifying pressure on the forex market for any exchange rate regime, and the relevance of exchange market pressure for central bank policy.

Students also have to write a short academic essay in which they apply a theory to a real-life event, for example.