1. EC0 463 International Monetary Relations Professor Malamud BEH 502 Email: bernard.malamud@unlv.edubernard.malamud@unlv.edu Website: http://faculty.unlv.edu/bmalamudhttp://faculty.unlv.edu/bmalamud Office Hours:TR 11:30 – 12:30 pm; 2:30 - 3:30 pm; and by appointment

2. International Monetary Relations It’s about: –Exchange Rates & Balance of Payments How they’re determined in an open economy How they affect an open economy What you’ll gain: –Command of challenging MODELS Hone your skills of economic analysis –A feel for the international economy –Appreciation of floating and fixed exchange rates Strengths and drawbacks How policy works … and doesn’t work … under each regime –Job interview talking points

3. The Course: Divided in Three Parts The Global Economy Follow the money … B of P accounts Exchanging the money Modeling the Open Economy Interest rates and exchange rates Money, interest and exchange rates (short-run, P fixed) PPP (long-run, P adjusts) Output, interest and exchange rates (short-run) Fixed exchange rates International Monetary History and Institutions Fixed vs flex OCA (Optimal Currency Areas -- the euro?)

4. A Tour of the World: August 2009 Global Economy Under Stress Locomotive of the 1990s and early 2000s…now slowed Lender of last resort in the ‘90s … –Mexico ’94 - 95 … East Asia ’97 - 98 –Kindleberger, World In Depression:1929-39 –Eichengreen, Golden Fetters –Bernanke, Essays on the Great Depression World in Recession – Financial Crises –Ballooning US Budget Deficit/Trade Deficit –Depreciating Dollar … Housing Bubble … Credit Crunch –Flight from U.S. investments? … Depreciating Dollar? –Rebalancing Can others propel growth? –Post-bubble Japan –Europe: Stability and Growth(?) Pact –China: Grand Ambitions … Undervalued currency –India: Great Potential –Brazil: The country of the future?

5. From Gillian Tett, Fool’s Gold The sun slipped slowly down the cerulean Spanish sky….[S]everal hundred bankers stood on the elegant terrace of a futuristic, gleaming white hotel, staging a so-called champagne salute in celebration of the fact that investment banks had just enjoyed their most lucrative year in history. The date was June 11, 2007 and the occasion was the annual meeting of the European Securitisation…The meeting carried a lofty title: “Global Asset Backed Securitization; Toward a New Dawn.” An exuberant crowd including smooth talking, white toothed salesmen from large American banks, eagerly selling repackaged mortgage debt; self-deprecating British traders; and earnest, chain-smoking representatives from German insurance companies and banks. Their prey included asset managers from Italy, Spain, Germany, and Greece…A silent gaggle of Chinese and Singaporeans circulated. It was rumored that they were furtively buying CDOs to find a home for foreign exchange reserves. A few regulators could also be spotted, conspicuous in looking generally dowdier than the bankers. Some of the biggest delegations, though, came from the three credit rating agencies that were drawing fat profits from the CDO boom…Lively debate ensued about the American mortgage backed bond market, the CDO sector, the SIVs, the state of the Spanish mortgage market and the outlook for Russian ABS. There was even a high-profile debate on Islamic finance [which] some hoped would be a hot new growth area for securitization…

9. Sample Exchange Rates, August 2009 Foreign Currency/US$ NOWLast Year % $ Appreciation Japan 93.7 110- 15 % China 6.83 6.85- 0.3% Britain 0.61 0.54+ 13% Canada 1.10 1.06+3.7% Eurozone 0.70 0.68+ 3% Russia 31.9 24.4+ 31% India 48.8 43.7+ 12% Korea1256 1049+ 20% Argentina 3.85 3.03+ 27% Brazil 1.85 1.62+ 14% Iceland 128 82.8+ 55%

12. Unemployment Rates & Year-to Year GDP Growth, Summer 2009 Unemp % GDP Growth USA9.4%- 3.9% Japan5.4- 6.4 China9.0+7.9 Britain7.8- 5.6 Canada8.6- 2.1 Eurozone9.4- 4.6 France9.4- 2.6 Germany8.3- 5.9 Italy7.3- 6.0 Spain 18.1- 4.1 Ireland 12.2- 8.5 Russia8.3 -10.9 India6.8+5.8 Korea3.8- 2.5 Argentina8.4+2.0 Brazil8.1- 1.8 Iceland8.1- 3.9

13. Dates April 1925 UK returns to gold October 1929 The Great Crash Sept 1931 UK leaves gold Aug 15, 1971 Nixon Econ Program Gold window closed/Import surtax Wage/Price Freeze October 1973 Arab Oil Embargo Oct 6, 1979 Volcker  Monetarist experiment 1982+ Third World Debt Crisis February 1985 $ - £ “parity” Oct 19, 1987 Black Monday Nov 9, 1989 Berlin Wall Down September 1992 ERM Collapse December 1994 Tequila Crisis Aug 1997 – 1998 East Asia Crisis Sept 1998 Long Term Capital Management Crisis Jan 1, 1999 € Sept 11, 2001 January 2002 Argentine Peso Collapse August 2007 US Mortgage Bubble Collapse 2008 US/UK / Spain Housing Bubble Collapse Credit Crunch: Bear Stearns / Fannie / Freddie/Lehman/Merrill/AIG/… … and Places Bretton Woods, ’44 –Vietnam, 1964… Plaza, Sept 1985 Louvre, Feb 1987 –Japan bubble Washington Consensus Maastricht, 1991 Basel I,II 1988, 2004