international finance, econ 434 barry w. ickes
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World HeadquartersTRANSCRIPT
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International Finance, Econ 434
Barry W. Ickes
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World Headquarters
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Global Losses in Context
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Barry W. Ickes
Worldwide Shock
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Global Growth(in percent, quarter over quarter annualized)
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Industrial Production
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Barry W. Ickes
World Industrial Output, Then and Now
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Barry W. Ickes
Our Stock Market, Then and Now
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World Stock Markets, Then and Now
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Barry W. Ickes
Volume of World Trade, Then and Now
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A Barbarous Relic?
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Pioneers of International Finance
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Core of our subject
• Multiple fiat currencies– Gives rise to exchange rates
• Facilitate international trade• Facilitate international risk sharing
– Intertemporal trade– Gross flows are huge
• Financial Crises are costly– And obviously they spillover across
countries
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Gross Global capital flows relative to net flows
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World Financial Flows
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Value of World Capital Markets= 4 (World GDP)
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How Large is this?
• Daily Forex turnover is $3.2 trillion– World GDP is about $54 trillion dollars per year
• US GDP is $14.4 trillion per year– US exports = $1.97 trillion, imports = $2.67 trillion
• Net exports = -$706 billion– By comparison total US investment in residential construction
= $704 billion in 2006 before the housing bust– Federal government expenditure = $2.9 trillion
• $566 billion is national defense
• Why are foreign exchange flows so large, and what is their impact?
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Daily Forex Turnover
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Globalization
• Globalization is not new• But massive 2-way diversification
differentiates the current from the earlier period of globalized capital markets.– Capital flows now from poor to rich
countries• Why?
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Systems of International Finance
• Bimetallism• Gold Standard• Gold Exchange Standard• Bretton Woods• Non-system• New Bretton Woods?
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Models
• Why do we use models?– Instructor is an _______– To simplify– To understand logically what we are
talking about– To make testing possible
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Topics
• Huge US Current Account Deficit– US uses most of world savings
• What explains the value of the dollar?• Financial Crises
– Large welfare losses• Optimal Currency Arrangements
– Common currency areas, the euro• International Financial Architecture
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US Current Account Balance, billions of dollars
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Current Account Balance as share of GDP Ratio of the Current Account to GDP
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
19601962196419661968197019721974197619781980198219841986198819901992199419961998200020022004
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US Balance of Trade Since 1970
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Current Account and Net Foreign Wealth
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US Share of Global Savings
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Global Current Account Flows, 2005
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Current Account Balances by Regionpct of world GDP
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Current Account Balances by Region
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Currency Crises
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Argentine Crisis
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US and Argentine External Wealth
Why did the sharp decline in external wealth cause a currency crisis in Argentina but not (yet) in the US?
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Dollars per Euro
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US Dollar Index Against Major Currencies