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...