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					15.012                                                                                    Profs. Rigobon & Suri
All Sections                                                                                        Spring 2010

                       Applied Macro and International Economics
                                 Preliminary Syllabus

This course investigates the macroeconomic environment in which firms operate. It aims to provide a
good grounding in macroeconomic concepts and tools, using specific country experiences. The course
first develops the basic tools of macroeconomic management, predominantly monetary and fiscal policy.
We will use both historic case studies as well as discussions of modern policy for context. This is focused
on the short run and will therefore also include a discussion of what exchange rate decisions economies
make. We also discuss why crises occur and how to manage these crises (both currency and financial).
Second, we will look at the long run macroeconomic issues in developing and emerging economies,
covering a variety of development strategies. This covers models of economic growth, and the role of
markets in economic development. We will spend some time discussing alternative strategies to growth
and development that have been followed by various economies to understand their success (or lack
thereof). Overall, the class will try to cover a broad array of emerging economies from China and India to
Africa, as well as a good discussion of the issues facing developed countries in the 21st century.

The class will be co-taught by Professors Roberto Rigobon and Tavneet Suri. On any given day, all four
sections will be taught by the same professor. All sections will therefore cover exactly the same material
and have exactly the same set of classes.

Note that this class is meant to be an introduction to macro and international economics. There will be a
slate of additional macro and international classes next year that will build on this material. In particular,
the following two classes will be offered in the next academic year. In Fall 2010, Roberto (and possibly
Tavneet) will teach 15.014, a class on “Macroeconomic Development and Sustainability”, for which
15.012 is required/a prerequisite. And in Spring 2011, Kristin Forbes will teach 15.018, a class on
“Global Economic Challenges”, for which 15.012 is recommended.

There are four TAs for the class, one for each section. There will be no recitations for this class (unless
requested), but the TAs will each hold office hours by appointment.

Before each class, you are expected to read at least the relevant case and usually an extra article and/or
note. Below is a list of required readings for each class. These are also available in the reading packet.
There is also a list of optional readings (organized by class) at the end of the main syllabus. These
optional readings are meant for those interested in further reading or for those who want a different
reference for the tools and material covered in class. The optional readings are not in the reading packet –
they are meant purely for extra reading (all the articles are available on Lexis Nexis and a reading packet
of these optional readings will be available on reserve at the library). In that spirit, there are two optional
text books which you can use if you want more detail on any of the theories covered in class. The optional
texts are “Macroeconomics”, 6 th Edition, by Gregory Mankiw (referred to as M below) and “International
Economics: Theory and Policy”, 7 th Edition, by Paul Krugman and Maurice Obstfeld (referred to as KO
below). Multiple copies of both are available on reserve at the library.

This is a case/readings based class. We have decided to structure the class a little differently this year.
There is no final exam. Instead, there will be three short assignments, each graded. And then the last three
classes will be reserved for debates, which are described in detail below. There will therefore be regular
classes from the 3rd of February through till the 5 th of March. The classes of the 8 th, 10th and 12th of March
are reserved for debates.

15.012                                                                                 Profs. Rigobon & Suri
All Sections                                                                                     Spring 2010


The week of March 8 th through 12th is reserved for debates on these three topics (the exact questions are
yet to be decided):

    1. Intellectual property rights, their role in economic growth and the implications for health and
       drug delivery in developing economies, especially with respect to HIV in Africa
    2. The potential for a currency aside from the US dollar to take over as a reserve currency and its
    3. World inflation and the global recovery from the financial crisis

In each section, students will be allocated to teams of 3 or four. Each team will then be allocated to one of
three “continents” – Latin America, Africa and Asia. Each team will be allocated a name (it will end up
being the name of a country that is part of the continent to which you get assigned). For the entire debates
process, you will have to remember your country and your continent.

The rules are section specific:
    Each team/country will only have to prepare 2 of the 3 debates. When they do not prepare a
        debate they are assigned to become the “swing voters”.
    They only prepare one side of each debate with the following “continent” assignation:

                                        Latin America         Africa          Asia
                       March 8th             yes               No            Swing
                       March 10th           swing              Yes            No
                       March 12th             no              swing           Yes

       Pre-Phase
            o In the first week of class, a secret ballot is held on each of the debate questions
       Phase 1:
            o All the teams/countries assigned to a position prepare a Power Point presentation of their
                arguments and submit these to the TA for their section. The maximum length of the
                presentations is 7 slides and this is the only deliverable you have to do for each debate.
            o Within each continent, the TA will circulate all the teams’ presentations to the group.
            o All students belonging to a group vote for the best presentation in the group (but they
                cannot vote for their own).
            o The team with the most votes “wins” the first phase. Votes do not in any way translate
                into grades, they just determine which team presents the debate in class
            o For example: if there are 10 countries in the Latin America group, preparing the “pro”
                side on March 8th, all 10 teams prepare a power point presentation and send it to the TA.
                These presentations are shared among all the students in that section that belong to the
                Latin America group. The students vote for the best presentation.
       Phase 2:
            o The team that wins Phase 1 is the one that represents the group in the debate in class, and
                has to present exactly the same slides that were sent to the TA.
            o The swing voters do not present that day
            o The teams debate in class according to the rules explained below.
            o After the debate, we take a second secret ballot.

15.012                                                                                 Profs. Rigobon & Suri
All Sections                                                                                     Spring 2010

               o   The group that moved public opinion toward the position they were defending wins the
                   debate. The winning team does not need a majority to win, they need the biggest sway.
               o   The results for all the debates are only announced at the end of the very last class.

Grading the Debate

The grade of the debate has two parts.
    The first part of the grade for each team (within a group) comes from the presentations prepared
       by every team. These will be graded by the TAs and the Professors. This grade is team specific.
    The second part is group wide. If the team representing the “pro” position wins the debate we
       assume that ALL the teams in the “pro” position win, and ALL the teams in the “con” position
       lose. This is a group grade, and the teams in the wining group receive a 10, the teams in the losing
       group get 0.

The reason behind the group grade is twofold: first, that you really vote for the presentation you think has
the best chance of winning in Phase 1, given that the slides cannot be changed. Second, that during the
rebuttal part of the debate, if you have a good argument, you should speak up – that might save the group
from losing even if the team presenting did a bad job.

Debate/Class Timing:

The team pro the debate (yes) starts with 5 minutes
The team against the debate (no) goes next with 7 minutes
The team pro the date (yes) has 2 minutes for rebuttal

At this point the debate is opened to the class on both sides of the debate for additional arguments and
discussions for another 15 minutes

Roberto and/or Tavneet summarize


Your grade for the course will be composed of the following:
       Three short problem sets (graded 1-3): 30% total (10% each)
       Class participation (non debate classes): 30%
       Grade on the two debates prepared:        20% (10% each debate, graded by TAs and Professors)
       Whether you win the debate:               20% (10% for each debate)

        The problem sets are individual (they can be worked on in groups, but each person has to hand in
        an individual write up for individual grades).

        Class participation is graded on a range of -2 to 3. If you do not attend class, you get a -2. If you
        attend but do not speak up much, you get 0. If you speak up with at least one decent comment,
        you will get points ranging from 1 to 3, depending on the quality of the comment. Speaking up on
        its own is not enough to earn even a 1. A 3 will be awarded extremely rarely and is for a
        comment/question that really changes the discussion.

15.012                                                                               Profs. Rigobon & Suri
All Sections                                                                                   Spring 2010


February 5th:   Team assignments completed

February 8th:   The teams in each section will be randomly assigned to one of the three continents/groups
                so you all know what debates you are preparing and for what dates

February 10th: By 5.00PM first assignment due (to be dropped off in the boxes in the econ suite)

February 16th: By 5.00PM second assignment due (to be dropped off in the boxes in the econ suite)

February 23rd: By 5.00PM third assignment due (to be dropped off in the boxes in the econ suite)

March 2nd:      By 5.00PM all presentations (i.e. for all debates) need to be submitted to the TA for your
                section via email. Presentations are final at this point and cannot be changed at any point
                after this date

March 2nd:      Late this evening you will receive an email from your TA with all the presentations for
                your group

March 4th:      By 5.00PM vote by writing an email to your TA for the best presentation in your group
                (you cannot vote for your own presentation)

March 5th:      In class, we will announce the winners (team) of the group for each debate so you know
                if you are presenting in class the following week or not. If there is a tie, we pick one

15.012                            Profs. Rigobon & Suri
All Sections                                Spring 2010

Contact Information


Roberto Rigobon
Office:       E52-442
Email:        rigobon@mit.edu
Office Hours: By appointment

Tavneet Suri
Office:         E52-457
Email:          tavneet@mit.edu
Phone:          617-253-7159
Office Hours:   By appointment

Teaching Assistants

Mathieu Apotheker
Email:        mathieua@mit.edu
Office Hours: By appointment

Sakshi Kapahi
Email:        skapahi@mit.edu
Office Hours: By appointment

Christiana Obiaya
Email:         cobiaya@mit.edu
Office Hours: By appointment

Onimisi Ojeba
Email:        oojeba@mit.edu
Office Hours: By appointment

Course Assistant

Sarah Hufford
Office:       E52-450
Email:        shufford@mit.edu
Phone:        617-253-9746

15.012                                                                         Profs. Rigobon & Suri
All Sections                                                                             Spring 2010

                                     Required Readings

Wed Feb 3:     Introduction and the Money Multiplier via Babysitters

Fri Feb 5:     Germany and Zimbabwe:
               Monetary Policy and the Velocity Theory of Money
               HBS Case #9-798-048: The German Hyperinflation of 1923
               Article (Economist):  Bag of Bricks: The Hyperinflation in Zimbabwe
               Article (NYT):        Zimbabwe’s Prices Rise 900%, Turning Staples into Luxuries

Mon Feb 8:     The IS-LM Model

Wed Feb 10:    Japan, Ireland, and the Great Depression:
               Applications of the IS-LM Model: Fiscal Policy and The Great Depression
               HBS Case #9-391-258: The Great Depression: Causes and Impact (Abridged)
               HBS Note #9-705-015: The Case of Expansionary Fiscal Contraction in Ireland in 1980s


Fri Feb 12:    AD-AS and Long Run Adjustment: The Connection to Inflation
               HBS Note #9-797-076: Fiscal Policy: Managing Aggregate Demand

Tues Feb 16:   Mexico and Argentina: Currency Crises
               HBS Note #9-799-089: Note on Currency Crises


Wed Feb 17:    Asia and Russia: Financial Crises
               Eichengreen:          How Economists Think About Crises

Fri Feb 19:    Growth models
               HBR Article #07406:    How Fast Can the US Economy Grow

Mon Feb 22:    Singapore: Productivity and Solow Growth Accounting
               HBS Case #9-703-040: Singapore Inc.
               Article(WSJ):         Singapore Swing: Krugman was Right…


15.012                                                                            Profs. Rigobon & Suri
All Sections                                                                                Spring 2010

Wed Feb 24:    India: Liberalization and the Washington Consensus.
               HBS Case #9-798-065: India on the Move
               Article (Economist):   Economics Focus: Light and Shade
               Article (Economist):   Economics Focus: Reading the Tea Leaves

Fri Feb 26:    China: The Choice of an Exchange Rate Regime
               HBS Case #9-706-021: China: To Float or Not to Float? (A)
               Article (Economist):  Who Wants to be a Trillionaire? China’s Foreign Reserves
               Article (Economist):  The White Peril: China

Mon Mar 1:     Europe: Optimal Currency Areas
               Feldstein:           The Euro and the Stability Pact
               Article (Economist): Transformed
               Article (Economist): The New Kids on The Block: Bulgaria and Romania
               Article (Economist): An Uncommon Current: The Euro


Wed Mar 3:     Africa: Social Entrepreneurship and Market Development
               Article (Economist):   A Seedbed of Revolution
               Article (Economist):   In Praise of Usury
               Article (Economist):   The Flicker of a Brighter Future: Business in Africa

Fri Mar 5:     Latin America and Asia: Challenges of Development Policy
               Rodrik:              Goodbye Washington Consensus, Hello Washington Confusion

Mon Mar 8:     Debate 1

Wed Mar 10: Debate 2

Fri Mar 12:    Debate 3

15.012                                                                            Profs. Rigobon & Suri
All Sections                                                                                Spring 2010

                                      Optional Readings

Wed Feb 3:     Introduction and the Money Multiplier via Babysitters
               Textbooks:            M Chapter 4, KO Chapter 14

Fri Feb 5:     Monetary Policy and the Velocity Theory of Money
               HBS Note #9-797-094: Note on Money and Monetary Policy
               Textbooks:            M Chapter 4, 10, 11 and 14, KO Chapter 14

Mon Feb 8:     The IS-LM Model
               Textbooks:             M Chapters 3, 9 and 11, KO Chapter 16

Wed Feb 10:    Applications of the IS-LM Model: Fiscal Policy and The Great Depression
               HBS Note #9-797-075: National Income Accounting
               Textbooks:             M Chapters 3, 9 and 11, KO Chapter 16

Fri Feb 12:    AD-AS and Long Run Adjustment:
               Textbooks:  M Chapters 9, 10 and 11, KO Chapter 16

Tues Feb 16: Game: Currency Crises
             Article (Economist): The Weakest Link
             Article (Economist): Tequila Slammer: The Peso Crisis, Ten Years On
             HBS Note #9-797-075: National Income Accounting
             HBS Note #9-705-025: Reading the Balance of Payments
             Textbooks:           M Chapter 2, 3 and 5, KO Chapter 12

Wed Feb 17:    Game: Financial Crises
               HBS Case #9-798-090: Responding to 21st Century Financial Crises
               Textbooks:           KO Chapter 22

Fri Feb 19:    Growth models
               Article (Economist):   Economics Focus: The Growth of Growth Theory
               Article (Economist):   Africa’s Strong Growth
               Textbooks:             M Chapters 7 and 8

Mon Feb 22:    Singapore, Productivity and Solow Growth Accounting
               HBS Note #9-794-051: Accounting for Productivity Growth
               Article (Economist):  Singapore’s Man With a Plan
               Textbooks:            M Chapters 7 and 8, KO Chapter 22

Wed Feb 24:    Liberalization and the Washington Consensus: India
               Article (Economist):    India Overheats
               Article (Rodrik, 2003): Economic Reform Without Rules of Thumb
               Textbooks:              KO Chapters 15 and 17

Fri Feb 26:    The Choice of an Exchange Rate Regime: China
               Article (Economist): What’s to Stop India and China
               Textbooks:           KO Chapters 15 and 17

15.012                                                                       Profs. Rigobon & Suri
All Sections                                                                           Spring 2010

Mon Mar 1:     European Union, Optimal Currency Areas
               Article (Economist): Birds of a Feather
               Textbooks:           M Chapter 12, KO Chapter 20

Wed Mar 3:     Social Entrepreneurship and Market Development
               Article (Economist):  Economics Focus: To Give or Forgive
               Article (Fin Times):  Africa’s Three Main Problems and How to Fix Them
               Article (Economist):  A Glimmer of Light at Last? Africa’s Economy


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