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School of Social Sciences

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BAEcon Economics
Learn how the social sciences can help you to understand today's world.

BAEcon Economics

Year of entry: 2018

Course unit details:
Economics of Monetary Integration in Europe

Unit code ECON30941
Credit rating 10
Unit level Level 3
Teaching period(s) Semester 1
Offered by Economics
Available as a free choice unit? Yes

Overview

Topics covered include the theory of Optimum Currency Areas and its critique; anti-inflation credibility, the design, and the strategy of the European Central Bank; fiscal discipline versus flexibility in a currency union; target zones, exchange rate stabilty, and exchange rate arrangements during the transition to a common currency.

Pre/co-requisites

Unit title Unit code Requirement type Description
Macroeconomics IIA ECON20401 Pre-Requisite Compulsory
Macroeconomics IIB ECON20402 Pre-Requisite Compulsory
Pre-requisites: (ECON20401 & ECON20402)

Aims

To offer an analytical perspective on key macroeconomic aspects of the European Monetary Union (EMU).

Learning outcomes

Upon completion of the course, students should have a firm grasp of the literature on the macroeconomics of monetary unions and they should demonstrate it by critically assessing policy issues related to EMU.

Syllabus

Introduction and History of the European Monetary Union
Exchange Rates and Monetary Union Under Flexible Prices
Exchange Rates and Monetary Union Under Inflexible Prices
Theory of Optimum Currency Areas, Costs and Benefits of a Common Currency    
Monetary and Fiscal Policy in the EMU    
The Crisis of the EMU and the Policy Response
 

Teaching and learning methods

Lectures/Tutorials.
Feedback classes on non-assessed coursework.

Assessment methods

Examination in January - 1.5 hours - 80%
Coursework - 4 x Assignments (5% each) - 20%

Recommended reading

O. Blanchard, A. Amighini and F. Giavazzi, Macroeconomics: A European Perspective, 1 ed., Harlow: Pearson Education Limited, 2010.

P. De Grauwe, Economics of Monetary Union, 9 ed., Oxford: Oxford University Press, 2012.

The Blanchard et al textbook can be accessed online via the University Library. Copies of the 6th edition of the De Grauwe textbook are available from the High Demand collection of the University Library.  The 4th edition of the De Grauwe textbook can be accessed online via the University Library, but only one copy may be viewed at a time.

Topics and Specific Readings:

Specific readings per topic contain references to general readings as well as important papers you should consult if you want to prepare a topic in depth.

Introduction and History of the European Monetary Union

Blanchard et al – 25.1-25.2  - compulsory reading

Wyplosz, “European Monetary Union: The Dark Sides of a Major Success,” Economic Policy, vol. 21, no. 46, pp. 207-261, April 2006 - compulsory reading

M. Feldstein, "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," The Journal of Economic Perspectives, vol. 11, no. 4, pp. 23-42, Autumn 1997

Exchange Rates and Monetary Union Under Flexible Prices

Notes on Lucas-Stockman model, posted on Blackboard - compulsory reading

Stockman, Alan C., “The Equilibrium Approach to Exchange Rates,” Federal Reserve Bank of Richmond Economic Review, March/April 1987 - compulsory reading

For extra help with Edgeworth boxes, students may wish to consult Chapter 31 of Hal  R. Varian’s “Intermediate Microeconomics”, 8th edition.  This textbook is available in the library.

Stockman, Alan C., “A Theory of Exchange Rate Determination,” Journal of Political Economy, Vol. 88, No. 4, August 1980

Lucas, Robert E., “Interest Rates and Currency Prices in a Two-Country World,” Journal of Monetary Economics, Vol. 10, No. 3, 1982

Exchange Rates and Monetary Union Under Inflexible Prices

Blanchard et al – Chapter 18 and 19 - compulsory reading

For a review of IS-LM and AS-AD models, review Chapters 5, 6 and 8 in Blanchard et al.

Theory of Optimum Currency Areas, Costs and Benefits of a Common Currency

De Grauwe – Chapters 1-4

Mundell, Robert A., “A Theory of Optimum Currency Areas,” American Economic Review, 51, No. 4, September 1961

McKinnon, Ronald I., “Optimum Currency Areas,” American Economic Review, Vol. 53, No. 4, September 1963

Monetary and Fiscal Policy in the EMU

Uhlig, H. (2002), “One Money, but Many Fiscal Policies in Europe: What Are the Consequences?”, CEPR Discussion Papers 3296 - compulsory reading

De Grauwe -- Chapters 8 and 9

Clarida, R., Gali, J. and Gertler, M. (1999), “The Science of Monetary Policy: A New Keynesian Perspective”, Journal of Economic Lit

Study hours

Scheduled activity hours
Assessment written exam 1.5
Lectures 14
Tutorials 4
Independent study hours
Independent study 80.5

Teaching staff

Staff member Role
Christoph Himmels Unit coordinator

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