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Lecture Notes



Lecture Notes

The set of questions below will help students focus on the important points in each of the cases. More importantly, the questions in italics are related to current events. It does not make any sense to study what has happened in the past if we cannot learn something from it, and apply it to today's problems. This is the way Prof. Rigobon wants to set up the class discussions.
LEC #TOPICSSTUDY QUESTIONS
Basic Tools of Economic Management
1Overview
2The German Hyperinflation of 1923

As Germany lost World War I, the empire of William II gave way to the democratic Weimar Republic. The first reading (by Johj Rodes) describes the political situation in Germany and the reparations demanded by Allies. The second, third, and fourth readings (by Stopler, Ringer, and Bresciani-Turroni) describe the hyperinflation, while the fifth reading gives central bank president's explanation for the Bundesbank's actions. The final reading gives Stopler's description of the stabilization of November 1923. Much of the information about the episode can be found in the exhibits at the end.
What caused the German Hyperinflation?

What were the consequences of the German Hyperinflation?

How would you advise the German government to reduce the country's inflation in November 1923?
3The Great Depression: Causes and Impact

Our objective in this session is to understand when an economy is in a recession, why it is, and what to do to get it out of it. This case discusses one of the most difficult recessions we know: those that are associated with deflation.

Fiscal Multiplier - The mystery of the babysitting cooperative (PDF)

The Disinflation Spiral - The great depression (PDF)
What were the causes of the Great Depression, what were the mistakes, how did they get out of it?

What would you do, today, in the U.S. (to get out of the recession)?
4ISLM

Simple notes on the ISLM model (the Mundell-Fleming model) (PDF)

The Reagan Plan

In 1981, Ronald Reagan is a new President confronted with a set of problems that seem intractable. The case allows for an analysis of Reagan's program, and especially the assumptions that underlie his policy measures.
How does fiscal and monetary policy work?

Evaluate the situation facing Reagan in 1981.

How was Reagan's strategy supposed to work in theory?

Does it address the causes of the U.S. economic problems?

What assumptions (economic, social, political and international) did the President make in his speech? Are they valid?
Development Strategies
5Japan

For more than 50 years, Japan had one of the most impressive performances in the world. This case describes hoe Japan achieved the high rates of growth.
What was the strategy Japan followed?

What failed them?

Is it feasible today?
6Singapore

For more than 25 years, Singapore has achieved virtually unprecedented levels of real economic growth. In the early 1990's, however, the island nation is faced with apparent diminishing returns to its previous strategy, with new competitive pressures, with changing social issues, and new leadership.
How do you explain Singapore's performance since 1965? Why has GNP growth been faster than most developing countries?

What is the role of saving and investment is Singapore's development?

How has productivity growth been attained and how has it contributed to the economy?

In August 1992, should the Singaporean government be changing its strategy?

Was the SEA crises predictable?
7Chile: The Latin American Tiger?

Chile is clearly in the wrong continent. But it wasn't like the current situation 20 years ago. What are the sources of Chile's incredible performance?
What is Chile's strategy for growth?

Why it has stopped?

What can Chile do next?

Would a free trade agreement with the U.S. help?
Emerging Market Crises
8The 1994-95 Mexican Peso Crisis

By the late 1980's the policies of de la Madrid and Salinas were widely regarded as showcases of stabilization and reform. However, by the end of Salinas' term, Rudiger Dornbusch tells the Mexican government that the Peso must be devalued. A devaluation at the end of 1994 results in chaos.
Is the peso overvalued in 1994? Why or why not?

What caused the exchange rate crisis of 1995?

Was the United States right in lending to Mexico during the crisis?
9Menem and the Populist Tradition in Argentina

Don't cry for me Argentina.
The peso... really sucks.
The unemployment,
the fiscal problems
Presidents failing
Now we've submerging.
(Can you hear the music on the background?)
What caused the Argentinean problems?

What can be done?

Was the currency board a good option?

What about dollarization?

What about declaring yourself a colony of U.S.?
10BBNN Notes and Review

The BBNN model (PDF)
11The Asian Crises

By the end of 1997, it was clear that the Asians tigers did something wrong, or not? Well before the crises several economists predicted them, but their timing was clearly wrong, or not? A lot has been said using the obvious wisdom after fact, but really little has been fully understood.
What were the reasons behind the financial crises?

Self-fulfilling or Fundamentals?

What can be learned from them?
Financial Crises and Contagion
12Malaysia

Malaysia in 1998 did exactly what every member of the financial markets was advising them NOT to do. They survived, how?
What are the cost and benefits of capital controls?

When should they be used?

What is the role of the IMF and the WB?

What about their policies? Are they really bad or it is just bad publicity?
13Midterm Exam
Transition Economies and Africa
14Russia - 1994

On December 12, 1993, the Russian people cast their votes in the first open multiparty election in Russian history. The election was a referendum on Yeltsin's reform strategy. Voters approved Yeltsin's new constitution. However, a majority of the electorate did not support advocates of economic liberalization in the parliamentary elections, choosing instead fringe parties and Communists. Had Yeltsin chosen the right economic and political reforms? Would implementing these policies in a different sequence have allowed for a more effective transition to a market economy?
Why did Gorbachev lose power?

What happened to Yeltsin's reform strategy by January 1994? Why?

What role should developed countries and the IMF play in Russian economic reform?

Are Yeltsin's constitutional reforms enough to assure future Russian growth? Are there other approaches you would suggest?

After the debt default, what are the next steps Russia should take?

Can we explain the economic success Russia has had, recently?
15China: Facing the 21st Century

China is without doubt currently the most dynamic force in Asia; it may be the most dynamic force in the world. Moreover, if China continues along its present trajectory, its growth will inevitably change the face of Asia. How did China do this? Where is China heading?
What is happening in China? How did China do this?

What are the problems facing Zhu in 1993? What are his options?

What is the impact of China's growth on other Asian countries?

What is the next step? What are their problems?
16Uganda and the Washington Consensus

Uganda is one of the most dynamic countries in Africa. This has been the result of important structural and market oriented reforms during the last decade. Today, however, important problems of external debt, as well as weak domestic social indicators, threaten the continuation of the process of reform. What can be done? Were there mistakes in the policies implemented that left some aspects behind? If so, what were those mistakes?
What is your diagnostic of the current situation?

How did they get there?

What are the challenges the economy is facing?

What would you do?

In these three cases we saw different paths of reform, what would be your sequence of reforms if you have to start all over again?
Trade Issues
17Boeing Versus Airbus

Classical economic theory suggests that free trade is the best strategy. However, most countries use protection. This case introduces the students to the issues on trade disputes by looking at a very important case: the aircraft industry.
What is the role of domestic policy and how it interacts with trade?

Does this rationalize why countries protect so much?
18The Debate on Globalization

Have you seen a demonstration lately? Probably it was either people complaining about the Red Sox or it was related to this topic.

The argument always reads as:
Poor countries are exploited by the powerful-evil-driven multinationals.
Poor countries are exploited by the powerful-evil-driven IMF and WB.
Poor countries are exploited by the powerful-evil-driven environmentalists.
Rich countries are too.

Comparative Advantages - Ricardian Model (PDF)
Are the workers in U.S. hurt by foreign cheap labor?

Why is this the case?

Should we do something about it?
Challenges of the Developed Economies
19Unemployment in France

Whereas unemployment in France was very low before 1975, it has been extremely high since 1985. The government's response to this high level of unemployment is widely regarded as the principle issue.
Why is double-digit unemployment of such great concern in France?

What are the primary causes of French unemployment?

What are Chirac's best options for dealing with the problem?

What are the prospects in Europe?
20European Monetary Union

Now we have a single currency. But to be honest, it hasn't performed as expected. The Euro is no near the fantastic currency some have predicted.
Does the Euro have any hope at all?

Was it a mistake to join?

Was it a mistake to accept the Italians, maybe that's why the currency is not performing (or are the Netherlands the ones to be blamed)?
21Social Security Reform

This case presents the challenges that social security will face in the future.
What is the source of the problem?

What can be done?

What are the prospects of developed economies?
22Japan: Free, Fair and Global?

The Japan of the 1980's differs dramatically from the "developmental state" that we have studied. The new Japan is a rich country with unprecedented current account surpluses, and a very high level of GDP per capita. However, GDP growth rates have declined and some observers feel that the economic strategy used by Japan is no longer appropriate.
Are Japan's problems in the 1990's cyclical or structural? Is this permanent or transitory?

If they are cyclical, why does output stay so low for so long?

How, if at all, should Japan change the role of government in its economy?

What is the role of monetary and fiscal policies in this context?

What can we do with Japan?

Is Japan trying to become more like an emerging market everyday?
23International Financial Architecture
24The United States

What is the future for the US? Are we going to get out of the recession? Will you be able to find employment (and pay your debts)?
How will the world look 25 years from now?

What is the role of the U.S.?

What will happen when China becomes as big as the U.S. (or at least bigger than Japan)?

 








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