International Financial
Markets
Emilio Colombo, Department of Economics,
Università di Milano - Bicocca.
News
Syllabus (tentative, please check the
web page as the course progresses. The syllabus will be updated continuously)
Required background: This
is an advanced course in international finance. You should be familiar with
standard undergraduate arguments of international finance / international
monetary economics (exchange rate, regimes, crises etc.).
Readings
- [ST] Sarno L., Taylor M. (2003), The Economics of Exchange Rates,
Cambridge University Press
The course takes for granted the knowledge of
the topics of a standard undergraduate course in International Money.
1) Foreign exchange market efficiency and the forward bias puzzle
- Slides Lecture 1
- Readings (required):
- Additional readings (optional)
- Background and general readings
- UIP tests
- Chinn - Meredith, (2001) Testing
Uncovered Interest Parity at Short and Long Horizons, mimeo
- Chinn- Meredith (2004),
Monetary
Policy and Long-Run Horizon Uncovered Interest Parity, IMF Staff Papers,
Vol.51, N.3
- Sarno-Leon-Valente (2006),
Nonlinearity in Deviations from Uncovered Interest Parity: An
Explanation of the Forward Bias Puzzle, Review of Finance, 10,
443-482, 2006
- Risk premium
- Learning
- Peso problem
- Chartists and Fundamentalists
- Frankel - Froot (1987) Using
Survey Data to Test Standard Propositions Regarding Exchange Rate
Expectations, American Economic Review, Vol.77, N.1, pp.133-161
- Frankel - Froot (1990) Chartists,
Fundamentalists, and Trading in the Foreign Exchange Market,
American Economic Review, pp.181-185
- Allen - Taylor (1990), Charts, Noise and Fundamentals in the
London Foreign Exchange Market, Economic Journal, N.100, pp.49-59.
- Bachetta P. Mertens E. (2006),
Predictability in Financial
Markets: What Do Survey Expectations Tell Us?, mimeo
2) The PPP puzzle
- Slides Lecture
- Readings:
- Additional Readings (optional)
- Theory
- Empirics
- Engel - Rogers (1996), How Wide Is the
Border?, American
Economic Review, Vol.86, N.5, pp.1112-1125.
- Lothian - Taylor, (1996), Real Exchange Rate
Behavior: The
Recent Float from the Perspective of the Past Two Centuries,
Journal of Political Economy, Vol. 104, No. 3, pp. 488-509
- Canzoneri, Cumby, Diba, (1999), Relative
labor productivity and the real exchange rate in the long run: evidence
for a panel of OECD countries, Journal of International Economics,
Vol.47, pp.245-266.
- Ravn, Imbs, Mumtaz, Rey (2005), PPP
Strikes Back: Aggregation and the Real Exchange Rate, 2005, Quarterly
Journal of Economics, vol.120(1), pp.1-43.
3) The exchange rate disconnect puzzle
- Slides Lecture
- Readings (required):
- Additional Readings (optional)
- Empirics
- Meese - Rogoff (1983), Empirical exchange rate models of the
seventies: do they fit out of sample?, Journal of International
Economics, Vol 14, pp.3-24.
- Frankel - Rose (1995) A Survey of Empirical Research on Nominal
Exchange Rates, in Handbook
of International Economics, G. Grossman and K. Rogoff, eds., North
Holland, Elsevier
- Engel, Mark, West (2007),
"Exchange Rate Models are Not
as Bad as You Think," NBER Macroeconomics Annual 2007, see also
the comment by Rogoff
- Mark (1995), Exchange Rates and
Fundamentals:
Evidence on Long-Horizon
Predictability,
American Economic Review 85(1):
201-218.
- Cheung, Chinn Pascual (2005),
Empirical exchange rate models
of the nineties: Are any fit to survive?
Journal of international money and finance, pp. 1150-1175
- Flood - Rose (1995),
Fixing Exchange Rates: A Virtual
Quest for Fundamentals, Journal of Monetary Economics, Vol 36,
3-36
- Exchange rates and Exchange rate regimes
4) Technical analysis and official intervention in foreign exchange markets
- Slides Lecture
- Readings (required):
- ST ch. 7
- Neely C. (1997)
Technical Analysis
in the Foreign Exchange Market: A Layman’s Guide, Federal Reserve Bank
of St. Louis, Review
- Menkhoff L., Taylor M., (2004),
The Obstinate
Passion of Foreign Exchange Professionals: Technical Analysis, Journal
of Economic Literature, Vol. 45, pp. 936–972
- Sarno - Taylor (2001), Official Intervention in Foreign Exchange
Market: Is It Effective and, If So, How Does It Work?, Journal
of Economic Literature, Vol.39, pp.839-868
- Additional Readings (optional)
- Background and General Readings
- Chris Neely, "An
Analysis of Recent Studies of the Effect of Foreign Exchange Intervention"
Federal Reserve Bank of St. Louis Review, November/December 2005,
87(6), pp. 685-717.
- Dominguez (2003)
Foreign Exchange Intervention: Did it Work in the 1990s? in
Dollar Overvaluation and the World Economy, edited by C. Fred
Bergsten and John Williamson, Institute for International Economics.
- Dominguez (1998), Central bank intervention and
exchange rate volatility, Journal of International Money and Finance,
vol.17, pp.161-190
- Fatum R., Hutchison M.,
(2003), Is Sterilized
Foreign Exchange Intervention Effective After All? An Event Study Approach
, Economic Journal
113 (487).
- The Signalling Channel
- Kaminsky - Lewis (1996), Does foreign exchange
intervention signal future monetary policy?, Journal of Monetary
Economics, Vol. 37, N.2-3, pp.285-312
- Dominguez and Panthaki (2007),
The Influence of
Actual and Unrequited Interventions, International Journal of Finance and
Economics, 12, 2007, 171-200.
- Dominguez (2006), When Do
Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange
Rate Movements?", Journal of International Money and Finance, 25,
2006, 1051-1071
- Fratzscher M. (2006),
On the long-term effectiveness of
exchange rate communication and interventions,
Journal of International
Money and Finance
25(1): 146-67
- The Portfolio Balance Channel
5) International Risk Sharing
- Slides Lecture
- Readings (required):
- Additional Readings (optional)
- Equity home bias puzzle
- Feldstein - Horioka puzzle
- Feldstein M, Horioka C (1980), Domestic
Savings and International Capital Flows, Economic Journal,
pp.314-329
- Coakley J., Kulasi F,, Smith R. (1998), The Feldstein-Horioka Puzzle
and Capital Mobility: a Review, International Journal of Finance and
Economics, Vol.3, pp.169-188
- Consumption correlation puzzle
6) Putting the puzzles together: implications for US current account
adjustment
Assessment
The assessment for this course is
based on
-
Project work: weight 60% , (70% for
those who have insurable risks)
-
Standard written exam (the remaining
40 or 30%)
Project work: each student will
have to carry out an empirical project and produce a report. The topic of the
project can be freely chosen among the following:
-
Estimating the forward bias puzzle
(uncovered interest parity)
-
Estimating an exchange rate model
-
Estimating the ppp
-
Calculating returns from carry trade
-
Calculating returns from technical
analysis
Additional topics have to be selected
with the agreement of the lecturer
Projects can be carried out as a team
(of up to 3-4 students) if presented in the summer (June-July) exam sessions.
Thereafter, each student will have to produce and present his own empirical
project.
The evaluation of the empirical project
will be based on a) quality b) originality
Each project has to contain the
following:
-
The definition of the theoretical
framework
-
The statement of the empirical
problem
-
A description of the data used
-
A description of the empirical
methodology
-
The interpretation of the results
The deadline for the submission of the
project work for the summer session is June 30th at 24:00. Submission has
to occur through email at the following address: emilio.colombo@unimib.it. For
projects outside the summer session the deadline is the day before the date of
the exam. I.e. is the exam is the 10th of September, the deadline is for the 9
at 24:00.
Exam Dates 2010
-
22 Gennaio ore 15.30
-
12 Febbraio ore 15.30
-
1 Aprile 15.30
-
18 Giugno 15.30
-
6 Luglio 09.30
-
10 Settembre 15.30
Results