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Reflections on Macroeconomic Analysis

My interest in macroeconomics predates my time at the International Monetary Fund (IMF). It partly stems from a personal experience of hyperinflation in Zimbabwe as well a desire to understand global economic and financial developments in a coherent model. My graduate thesis is a study of the risks associated with euro bond issuance by commodity-dependent sub-Saharan African countries. The relevant framework for this is the Debt Sustainability Analysis (DSA), which I summarize below. Written under the supervision of Professor Jeffrey Frankel–a preeminent macroeconomist who served in President Clinton's Council of Economic Advisers–my thesis recommends issuance of commodity bonds as a mitigant to unsustainable debt. I have already blogged about my findings elsewhere, so I would like to use this post to reflect on some of the macro theories and models that I have learned. Here is an outline derived from one of my favorite courses at the Kennedy School–API-120: Advanced Open Economy Macroeconomics taught by Jeff Frankel in the Fall of 2012.
  1. Devaluation and the Trade Balance
    1. Marshall-Lerner
  2. Mundell-Fleming Model
    • Keynesian trade balance
    • Monetary and Fiscal Policy
      • Under a fixed exchange rate regime; 
      • Under a floating regime and Capital Mobility
  3. Money and Inflation
    • Aggregate supply
    • Monetary Policy
      • Dynamic Inconsistency and Rules
    • Seignorage and Hyperinflation
  4. Purchasing Power Parity
    • Does PPP hold
    • Why does PPP fail?
      • Sticky prices
      • Trade barriers
      • Non-traded goods
  5. Small Open Economies
    • Devaulation in SOEs
    • The Salter-Swan ("Nontraded goods") Model
    • Dutch Disease
  6. Exchange Rate Regimes
    • Classification, pros and cons
    • Optimum Currency Area
  7. Integration of Financial Markets
    • Intertemporal trade theory & capital mobility
    • Procyclicality 
    • Interest rate parity (covered, uncovered, real)
  8. Exchange Rate Determination
    • Flexible price models
    • Bubbles
    • Sticky-price models and overshooting
  9. Crises in Emerging Markets
    • Speculative attack models
    • Boom-bust cycle; Early warning indicators; Sudden stops; Contagion
  10. Forward Market Bias & Portfolio Diversification
    • Exchange rate forecasting and forward bias ("carry trade")
    • Optimal portfolio diversification
    • Home bias
    • Country risk and Debt Sustainability Analysis
To be continued...

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