Carnegie Mellon University

Monetary Policy in the US and Abroad

Course Number: 45811

The course employs a two-country model of international trade and finance to explain the determination of the exchange rate, the terms of trade, the trade balance, financial flows, and interest rates in the global context. We explore the scope for interest rate policy to stabilize domestic employment and inflation against internationally transmitted macroeconomic shocks. [The two-country model is based on the closed-economy macro-model studied extensively in Economics 45-810, "Money, Banking, and Financial Markets." The closed-economy model is included in the course packet for Economics 45-811, but it is not covered in class.]

We employ the two-country model to study i) the consequences of an "inflation scare" in a flexible exchange rate regime, ii) the nature of the 1997-98 east Asian currency crisis, iii) the implications of China's fixed exchange rate regime for trade and financial relations between China and the US, and iv) international adjustment problems within the Euro area.

We learn how the world achieved a working consensus on the core principles of monetary policy in the last quarter century. And we review actual Federal Reserve decision-making in detail since 1979 covering the Volcker disinflation and the Greenspan era.

We assess current macroeconomic stabilization problems involving i) politics, banking, and exchange rate policies in China, ii) the European Central Bank, banking, and fiscal policy in the Euro area, iii) capital inflows, exchange rate and inflation stabilization in emerging market economies and, iv) safe-haven capital inflows into Switzerland.

The course concludes with a series of in-class briefings by student teams. Each team selects a particular country and uses conceptual tools developed in the course in conjunction with information from that country's central bank website and other online sources to describe that country's economy, its central bank policy framework, and the historical behavior of the country's macroeconomic and financial time series. The team assesses current economic conditions in that country and recommends central bank policy actions to stabilize that country's economy going forward.

Course Materials: Course packet of articles, problem sets, answers, and other handouts, as well as selected central bank websites and other online information. We interpret economic, central banking, and financial news in the Wall Street Journal with conceptual tools developed in the course.

Degree: MBA
Concentration: Economics
Academic Year: 2019-2020
Semester(s): Mini 4
Required/Elective: Elective
Units: 6


Lecture: 100min/wk and Recitation: 50min/wk