PP5213: Contemporary Financial Policy Issues in Emerging Asia
Asia's share of the world's GDP, which is currently little above twenty percent, is likely to double by 2030. This has drawn much attention to the dynamic emerging Asian region, especially to the economic giants - China and India. This course explores different aspects of contemporary international economic issues in the region. Coverage will be broad, focusing on financial crises, reserve accumulation, capital flows and currency wars, on the one hand, and issues relating to foreign direct investment and developments in China and India, on the other.
Since this is a graduate level course with only one lecture per week, significant degree of self-study, reading and initiative is expected. The course is fairly intensive and students are expected to have fully read the assigned readings before class.
Prereqs: Need to have completed Economics and Public Policy I and Economics and Public Policy II and basic statistics. PP5247 and PP5213 preclude each other. Students will not be able to register for both modules. Also, students who have taken PP5247 in the past will not be able to register for PP5213. Given the heavy policy emphasis in this course, it will be complementary to other ones such as PP5212 and others which lay heavy emphasis on learning analytical tools.
Lecturer: Prof. Ramkishen Rajan
Lecture Time: Friday, 9am - 12pm
Lecture Venue: SR 3-4
Office Hours: Tuesday and Wednesday 10am – 12pm or by appointment.
(Do not leave phone messages; best to e-mail me).
Required Text: Emerging Asia: Essays on Crises, Capital Flows, FDI and Exchange Rates by Ramkishen S. Rajan, Palgrave-Macmillan, 2011.
Supplementary Readings to be distributed during semester.
All required readings are listed below with the URLs. Any additional readings will be sent to the class by e-mail.
In-class Mid-Term (25%).
Term Paper (25%). 5000 words (Text). 1.5 space, Arial 10 Font.
In-class Finals (30%).
Take-home Exam Question (10%)
Class Participation (10%).
Details of Exams and paper will be discussed in Week 2 or 3 of class.
Important information on grading: I have high standards and it is unlikely (though by no means impossible) that more than 30 percent of the class will get an “A” or “A-” grade (i.e. sign of good performance in my class). The median grade is likely to be in the range of B+ to B. Grades in this class have to be earned; they are not an entitlement and neither are they negotiable.
Policy on Plagiarism: The profession of scholarship and the intellectual life of a university as well as the field of public policy inquiry depend fundamentally on a foundation of trust. Thus any act of plagiarism strikes at the heart of the meaning of the university and the purpose of the School of Public Policy. It constitutes a serious breach of professional ethics and it is unacceptable. Plagiarism is the use of another’s words or ideas presented as one’s own. It includes, among other things, the use of specific words, ideas, or frameworks that are the product of another’s work. Honesty and thoroughness in citing sources is essential to professional accountability and personal responsibility. Appropriate citation is necessary so that arguments, evidence, and claims can be critically examined. I take plagiarism seriously and has adopted a zero tolerance policy. Any plagiarized assignment will receive an automatic grade of “F.”
Draft Course Outline (Note: NBER working if any are only accessible on campus)
TOPIC 1: Capital Flows and Exchange Rates in Asia
Shopping Week 1 (Aug. 12): Course Preliminaries
Week 2 (Aug. 19): Booms and Busts in Private Capital Flows to Emerging Asia since the 1990s
Rajan: Chapters 1, 2 and 17
Akyuz, Y. (2011). “Capital Flows to Developing Countries in a Historical Perspective: Will The Current Boom End with a Bust?,” South Center, Research Paper 37, March.
Dadush, U. and B. Stancil (2011). “The Capital Flow Conundrum,” Vox-Eu, July 5. http://www.voxeu.org/index.php?q=node/6718
Eichengreen, B. (2006). Global Imbalances: The New Economy, the Dark Matter, the Savvy Investor, and the Standard Analysis,” The Journal of Policy Modeling.
Eichengreen, B. (2010). “Managing Openness: Lessons from the Crisis for Emerging Markets,” Prepared for “Managing Openness,” World Bank.
Eichengreen, B. and Y.C. Park (2008). “Asia and the Decoupling Myth,” mimeo, University of California, Berkeley.
International Monetary Fund (2007). “Managing Large Capital Inflows,” Chapter 3, World Economic Outlook 2007, February.
Rajan, R.S. (2009). “Crises, Private Capital Flows and Financial Instability in Emerging Asia,” UNESCAP Working Paper 09/06, June.
United Nations Development Programme (2009). “The Financial Crisis and its Impacts on Developing Countries,” UNDP Working Paper, January.
Week 3 (Aug. 26): Exchange Rate Regimes in Asia
Rajan: Chapter 4
Eichengreen, B. (2008). “Exchange Rate Regimes and Capital Mobility: How Much of the Swoboda Thesis Survives?,” Prepared for Conference in honor of Alexander Swoboda, Geneva, May 30.
Frankel, J. (2003). “A Proposed Monetary Regime for Small Commodity-Exporters: Peg the Export Price,” mimeo, Harvard University.
Frankel, J. (2003). “Experience of and Lessons from Exchange Rate Regimes in Emerging Economies,” in “Monetary and Financial Cooperation in East Asia,” Macmillan Press.
Hoe Ee, K., E. Robinson, and J. Lee (2004). “Managed Floating and Intermediate Exchange Rate Systems: The Singapore Experience,” Monetary Authority of Singapore.
Ma,G., and R.N. Mccauley (2008). “The Evolving East Asian Exchange Rate System,” Prepared for HKIMR, September 16.
Obstfeld, M., J. Shambaugh and A. Taylor (2004). “The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility,” Prepared for “The Political Economy of Globalization: Can the Past Inform the Present?” IIS at Trinity College, Dublin.
Ouyang, A., R.S. Rajan and T.D. Willett (2007). “China as a Reserve Sink: The Evidence From Offset and Sterilization Coefficients,” HKIMR Working Paper, 10/2007, May.
Rajan, R.S. (2009). “Fear of Floating,” Princeton Encyclopedia of the World Economy
Rajan, R.S. (2009). “Exchange Rate Pass-Through,” Princeton Encyclopedia of the World Economy
Rajan, R.S. (2010). “The Evolution and Impact of Asian Exchange Rate Regimes,” ADB Working Paper, 208, July.
Soo Khoon, G. (2009). “Managing the Impossible Trinity: The Case of Malaysia,” MPRA Working Paper.
China’s Exchange Rate
Balasubramaniam, V., I. Patnaik and A. Shah (2011). “Who Cares About the Chinese Yuan?,” NIPFP Working Paper 89.
Eichengreen, B. (2010). “27 Up: The Implications for China of Abandoning its Dollar Peg,” mimeo, June. http://www.econ.berkeley.edu/~eichengr/27_up_6-22-10.pdf
Thorbecke, W. (2011). “The Effect of Exchange Rate Changes on Trade in East Asia,” ADBI Working Paper, 263, January.
Asian Currency Unit (ACU)
Eichengreen, B. (2006). “The Parallel Currency Approach to Asian Monetary Integration,” mimeo, University of California, Berkeley.
Pontines, V and R.S. Rajan (2008). “The Asian Currency Unit: Exploring Alternative Currency Weights,” Macroeconomics and Finance in Emerging Market Economies, September.
Sen Gupta, A. (2010). “Prospects for a Single Asian Currency,” Public Policy Review, 6 (5), June.
Tzu-Chin, C. (2006). “The Experience of Europe by 1999 and its Lessons,” Chapter 1 in “The Proposed Asian Currency Unit (ACU): Challenges and Prospects.”
Week 4 (Sep. 2): East Asia and the Real Exchange Rate
Rajan: Chapter 5
Eichengreen, B. and O. Choudhry (2005). “Managing Capital Inflows: Eastern Europe in an Asian Mirror,” Prepared for “Macroeconomic Policies for EU Accession,” Turkish Central Bank/Center for European Integration Studies, May.
Eichengreen, B. (2007). “The Real Exchange Rate and Economic Growth,” Prepared for Institute for Social and Economic Studies, Port of Spain, March 27.
Haddad, M., and C. Pancaro (2010). “Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long,” Economic Premise, 20, World Bank, January.
Ito, T., P. Isard and S. Symankshy (1999). “Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia,” NBER Special Volume, January.
Rajan, R.S. and J. Beverinotti (2011). “The Real Exchange Rate, Sectoral Allocation and Development in China and East Asia: A Simple Exposition,” Journal of International Development (forthcoming).
Rodrik, D. (2008). “The Real Exchange Rate and Economic Growth,” Brookings Papers on Economic Activity, Fall.
Week 5 (Sep. 9): US Dollar and World’s Reserve Currency
Rajan: Chapter 3
Cohen, B. (2009). “The Future of Reserve Currencies,” Finance and Development, 9, IMF.
Cohen, B. (2009). “ Toward a Leaderless Currency System,” in Eric Helleiner and Jonathan Kirshner (eds.), “The Future of the Dollar,” Cornell University Press.
Cohen, B. (2011). “Currency and State Power,” mimeo, University of California, Santa Barbara.
Cohen, B. (2011). “Paradise Lost? The Euro after the Crisis,” mimeo, University of California, Santa Barbara.
Eichengreen, B. (2004). “The Dollar and the New Bretton Woods System,” Lecture at Cass School of Business, December.
Eichengreen, B and M. Flandreau. (2008). “The Rise and Fall of the Dollar, or When did the Dollar Replace Sterling as the Leading Reserve Currency?” Prepared for Conference in honor of Peter Temin, Cambridge, May 9.
Eichengreen, B. (2009). “The Dollar Dilemma,” Foreign Affairs, September/October.
Eichengreen, B. (2009). “The Crisis and the Euro,” mimeo, University of California, Berkeley, April.
Eichengreen, B. (2010). “The Renminbi as an International Currency,” drawn from Eichengreen, B. “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System,” New York: Oxford University Press.
Eichengreen, B. (2010). “Managing a Multiple Reserve Currency World,” mimeo, April, University of California, Berkeley.
Genberg, H. (2009). “Currency Internationalisation: Analytical and Policy Issues,” Bank of Korea-Bank for International Settlements, March.
Ocampo, J.A. (2010). “Special Drawing Rights and the Reform of the Global Reserve System,” Policy Brief, Initiative for Policy Dialogue,
Krugman, P. (2011). “Reserve Currency Mysticism,” New York Times, May 29.
Ruenbanterng, T. (2009). “Is there an Alternative to the Dollar for Setting Oil Prices?,” Bank of Thailand, mimeo.
Skala, M. (2011). “A New IMF Reserve Currency without the Problems of the Substitution Account – The Creation of Special Transaction Rights,” Vox-Eu, April 20.
Internationalization of RMB
Chen, H., W. Peng and C. Shu (2009). “The Potential of the Renminbi as an International Currency,” HKIMR, February.
Cohen, B. (2011). “The Yuan Tomorrow? Evaluating China's Currency Internationalization Strategy,” University of California, Santa Barbara.
Dobson, W., and P. Masson (2009). “Will the Renminbi Become a World Currency?,” China Economic Review, 20 (1).
Huang, Y. (2010). “The Future of the International Currency System and China’s RMB,” East Asia Forum, February 28.
Kitichaiwat, W. (2011). “Crouching Dollar, Expanding Yuan,” Bank of Thailand, mimeo.
Lee, J.W. (2010). “Will the Renminbi Emerge as an International Reserve Currency?,” Asian Development Bank, June.
Mccauley, R. (2011). “The Internationalisation of the Renminbi,” HKIMR, January 13.
Ranjan, R., and A. Prakash, (2010). “Internationalisation of Currency: The case of the Indian Rupee and Chinese Renminbi,” Reserve Bank of India Staff Studies, May 18.
Zhang, L. (2011). “Reform of the Global Reserve System and China’s Choice,” Prepared for CUFE-IPD conference, March 18-19.
Topic 2: Capital Controls, Prudential Regulations and Crises
Week 6 (Sep. 16): Capital Controls, Tobin Tax and Macroprudential Policies
Rajan: Chapters 6, 7, 8
Eichengreen, B. (2001). “When Does Capital Account Liberalization Help More than It Hurts?,” Tel Aviv University, mimeo.
Eichengreen, B. (2007). “The Cautious Case for Capital Flows,” Prepared for “Free Capital Mobility: What’s in Store for Asia,” Rating Asia Malaysia.
Prasad, E.S. and R.G. Rajan (2008). “A Pragmatic Approach to Capital Account Liberalization,” NBER Working Paper No. 14051, June.
Cozzi, G. and M. Nissanke (2009). “Macroeconomic Trilemma and Capital Controls:
Revisiting the Malaysian Experience,” NCCR Working Paper 27.
Eichengreen, B. (2000). “Taming Capital Flows,” World Development, 28 (6). http://www.econ.berkeley.edu/~eichengr/policy/worlddevelopment2.pdf
Forbes, K.J. (2006). “Capital Controls,” Palgrave’s Dictionary of Economics, 2nd Edition.
Jeanne, O. (2010). “Dealing with Volatile Capital Flows,” Policy Brief 10-18, Peterson Institute of International Economics.
Korinek, A. (2010). “Regulating Capital Flows to Emerging Markets: Design and Implementation Issues,” Vox-Eu, December 22.
Levy Yeyati, E. (2011). “Are Capital Controls Effective?,” Vox-Eu, January 20. http://www.voxeu.org/index.php?q=node/6031
Noy, I., and R.S. Rajan (2009). “Capital Controls,” Princeton Encyclopedia of the World Economy.
Ostry, J.D., A.R. Ghosh, K. Habermeier, M. Chamon, M. Quereshi and D.B.S. Reinhardt (2010). “Capital Inflows: The Role of Controls,” IMF Staff Position Note 10/04, February 19.
Ostry, J.D., A.R. Ghosh, K. Habermeier, L. Laeven, M. Chamon, M. Quereshi and A. Kokenyne (2011). “Managing Capital Inflows: What Tools to Use?,” IMF Staff Position Note 11/06, April 5.
Shah, A., and I. Patnaik (2007). “India’s Experience with Capital Flows: The Elusive
Quest for a Sustainable Current Account Deficit,” NBER Working Paper, January.
Zhan, B. (2003), “How to Evaluate and Enhance the Effectiveness of Capital Control in China?,” China and World Economy, No.6.
Bird, G., and R.S. Rajan (2000). “Would International Currency Taxation Help Stabilise Exchange Rates and Avoid Currency Crises in Developing Countries?,” University of Adelaide.
Eichengreen, B., J. Tobin and C. Wyplosz (1995). “Two Cases for Sand in the Wheels of International Finance,” The Economic Journal, 105 (428), January.
McCulloch, N., and G. Pacillo, “The Tobin Tax – A Review of the Evidence,” Institute of Development Studies, University of Sussex, March 23.
New Rules for Global Finance (2003). “Debating the Tobin Tax,” October.
Macro Prudential Policies
Caruana, J., “Monetary Policy in a World with Macroprudential Policy,” SAARCFINANCE Governors' Symposium 2011, India, June 11.
Moreno, R. (2011). “Policymaking from a “Macroprudential” Perspective in Emerging Market
Economies,” BIS Working Papers 336, January.
Nijathaworn, B. (2010). “Macroprudential Policies and Capital Flows: Managing under the New Globalization,” Bank of Thailand, mimeo.
Ocampo, J.A. (2003). “Capital Account and Counter-Cyclical Prudential Regulations in Developing Countries,” in Ricardo Ffrench-Davis and Stephany Griffith-Jones (eds.), “From Capital Surges to Drought: Seeking Stability for Emerging Markets,” Palgrave/Macmillan, London, 2003.
Park, Y.C. (2011). “The Role of Macroprudential Policy for Financial Stability in East Asia’s Emerging Economies,” ADBI Working Paper 284.
Serven, L. (2010). “Macroprudential Policies in the Wake of the Global Financial Crisis,” Chapter 7 in “The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World,” World Bank.
Vinals, J. (2011). “Macroprudential Policy: An Organizing Framework,” IMF, March.
Yellen, J.L. (2011). “Reaping the Full Benefits of Financial Openness,” Speech at Bank of Finland,Helsinki.
Recess Week (Sep. 23)
Week 7 (Sep. 30): Crises, Sovereign Debt Defaults and Crisis Management
Rajan: Chapter 9 and 11
De Paoli, B., G. Hoggarth and V. Saporta, (2006). “Costs of Sovereign Default,” Financial Stability Paper No.1, Bank of England.
Eichengreen, B. (1999). “Is Greater Private-Sector Burden Sharing Impossible?,” Prepared for IMF, May.
Eichengreen, B. (2001). “Managing Financial Crises,” Goteborg University, November. http://www.econ.berkeley.edu/~eichengr/policy/crises_nov01.pdf
Eichengreen, B. (2001). “Crisis Prevention and Management: Any New Lessons from Argentina and Turkey?,” Background paper for the Global Development Finance 2002, World Bank.
Eichengreen, B., and M. Bordo (2001). “Crises Now and Then: What Lessons from the Last Era of Financial Globalization?” Prepared for Conference at Bank of England, November.
Eichengreen, B. (2003). “Restructuring Sovereign Debt,” mimeo, University of California, Berkeley.
Gennaioli, N., A. Martin and S. Rossi (2010). “Sovereign Defaults, Banks and Financial Institutions,” Vox-Eu, November 17.
Hatchondo, J.C., L. Martinez, and H. Sapriza (2007). “The Economics of Sovereign Defaults,” Economic Quarterly, 93(2), Spring.
Hatchondo, J.C. and L. Martinez (2010). “The Politics of Sovereign Defaults,” Economic Quarterly, 96 (3), Third Quarter.
Herman, B. (2011). “How to Resolve Sovereign Debt Crises in the Twenty-First Century?,” Institute for Policy Dialogue Working Paper, June.
Sturzenegger, F., and J. Zettelmeyer (2007). “Sovereign Defaults and Debt Restructurings: Historical Overview,” Chapter 1 in “Debt Defaults and Lessons from a Decade of Crises,” MIT Press.
UNCTAD (2011). “Draft Principles on Promoting Responsible Sovereign Lending and Borrowing,” April.
Week 8 (Oct. 7): Mid-term Exam – READ (Miscellania)
Borio, C. (2009). “Ten Propositions about Liquidity Crises,” BIS Working Papers 293.
Eichengreen, B. (2004).“Financial Instability,” Prepared for Copenhagen Consensus, April.
Eichengreen, B. (2011). “Reforming the International Financial Architecture, 2011 Edition,” Key note address delivered to the Annual Conference of the Bank of Korea, May.
Griffith-Jones, S., and Ocampo, J.A (2011). “Global Governance for Financial Stability and Development,” Initiative for Policy Dialogue Working Paper Series. Semester 1, 2011: Draft as of August 2, 2011 12
Kose, A., E. Prasad, K. Rogoff and S.J. Wei (2005). “The Macroeconomic Implications of Financial Globalization: A Reappraisal and Synthesis,” HKIMR Working Paper, November.
Week 9 (Oct. 14): Banking Sector Internationalisation and Bank Regulations in Asia
Rajan: Chapter 10
Amadou, B.T., S.J. Dacanay, L. Lepetit, and A. Tarazi, (2008). “Ownership Structure And Bank Efficiency in the Asia Pacific Region,” SSRN Papers.
Bird, G. and R.S. Rajan (2001). “Banks, Financial Liberalisation and Financial Crises in Emerging Markets,” World Economy, 24 (7).
Cerutti, E., Dell Ariccia, G., M. Soledad and M. Peria, (2007). “How Banks go Abroad: Branches or Subsidiaries?” Journal of Banking and Finance, 31.
Claessens, S. and T. Glaessner (1998). “Internationalization of Financial Services in Asia,” mimeo.
Cull, R. and M. Peria (2007). “Foreign Bank Participation and Crises in Developing Countries,” World Bank Research Working Paper 4128, February.
Gopalan, S. and R.S. Rajan (2009). “Financial Sector De-Regulation in Emerging Asia: Focus on Foreign Bank Entry,” The Journal of World Investment and Trade, Vol. 11.
Hawkins, J. and D. Mihaljek (2001). “The Banking Industry in the Emerging Market Economies: Competition, Consolidation and Systemic Stability - An Overview,” BIS Papers No.4.
Milo, M (2001). “Deregulation of Bank Entry and Branching: Impact on Competition,” PIDS Discussion Paper 27.
Pepinsky, T. (2009). “Openness without Liberalization: Why Bankers in Emerging Markets Support Financial Internationalization,” Presentation at International Political Economy Society, November.
Roldos, J. (2001). “FDI in Emerging Markets Banking Systems,” OECD Global Forum on International Investment, November. http://www.oecd.org/dataoecd/24/19/2422194.pdf
Deloitte (2005). “Understanding the Framework: Adopting the Basel II Accord in the Asia-Pacific.”
Walter, S. (2011). “Basel III: Stronger Banks and a More Resilient Financial System,”
Financial Stability Institute, April 6.
Wellink, N. (2011). “Basel III and Beyond,” High Level Meeting on Better Supervision and Better Banking in a Post-crisis Era, Malaysia, January 17.
Wellink, N. (2011). “Basel III: A Roadmap to Better Banking Regulation and Supervision,” FSI High-Level Meeting on the New Framework to Strengthen Financial Stability and Regulatory Priorities, Russia, May 24.
Week 10 (Oct. 21): Presentation of Abstracts
Topic 3: Issues in Foreign Direct Investment in Asia
Weeks 11 and 12 (Oct. 28 and Nov. 4): Intra-Asian Foreign Direct Investment Flows
Rajan: Chapters 21-25
Hattari, R. and R.S. Rajan (2009). “Understanding Bilateral FDI Flows in Developing Asia,” Asian-Pacific Economic Literature, 23(2).
Hattari, R. and R.S. Rajan (2011). “How Different are FDI and FPI Flows?: Does Distance Alter the Composition of Capital Flows?,” HKIMR Working Paper 09/2011.
Petri, P. (2010). “The Determinants of Bilateral FDI: Is Asia Different?,” mimeo, Brandeis University .
Rajan, R.S. (2005). “Foreign Direct Investment and the Internationalization of Production in the Asia-Pacific Region: Issues and Policy Conundrums,” Asia-Pacific Trade and Investment Review, 1 (1), April.
Week 13 (Nov. 11): Review
Final Exam (Dec. 2): 9am-11am, venue SR3-1
Note: This schedule is tentative and could undergo some changes over the course of the semester (for instance, there may be guest lectures, there may be a new and interesting and relevant topics that has gained importance, etc.)
Extra topics if needed
Global imbalances and Sterilization
Asian regionalism including OCA