INTERNATIONAL ECONOMIC AND FINANCIAL POLICY

1.Knowledge and understanding

The course aims to provide conceptual tools for the macroeocnomic analysis of the global economic environment. The role of economic policy, in the current context of financial globalization will be studied by devoting a particular attention to understand different theoretical approaches to policy making. Thus, the emphasis will be focused in describing, from a macroeconomic point of view, the interaction between the real and financial side of economies, by focusing on expectations, markets and the determination of the equilibrium level of income. A specific reference to Monetary Unions will be done. After a general revision of the basic macroeconomic knowledge, the course will also provide a specific insight on the beneficial role that many conceptual tools imported from statistical physics may assume in studying macroeconomic problems. The econophysics approach, addressed both to financial markets and the real side of an economy in general, will be shown to provide more focused models for an effective design of policies.

2. Applying knowledge and understanding

Applying knowledge and understanding: Students are required to broaden both their culture and their terminology. They should develop proRactive analysis capabilities, in order to use theoretical models and verify their applicability to real cases. The degree of their ability will be monitored during the course, also by interpreting relevant facts of the critical global macroeconomic environment.

3. Making judgments

It is particularly important that students develop their own critical skills and independent judgment capacity. Macroeconomic Policy is a matter of ideology, after all, and (therefore) an individual well- sounded personality should be used for the analysis of actual cases. These cultural advancements are required in order to develop the attitude to identify policy objectives, policy instruments and their applicability range, both within a domestic scenario and in a supra-national setting.

4. Communication skills

During the course, the student will have the opportunity to improve and refine the technical language and the attitude for economic reasoning (whose fundamentals should have been already learnt in previous economics courses) and to broaden their capability to express themselves in English. Communicative skills in the foreign language will not be tested, but it is obvious that the ability to reply to questions and discuss issues is “reasonably” necessary. Moreover, an adequate knowledge of basics of Macroeconomics and of Mathematics for Economics is needed.

5. Learning skills

The learning ability of the student will be checked by the teacher during the course, by encouraging participation and providing guidance for the most correct learning process. In this discipline, more than in others, analytical theoretical models should be carefully understood before they can be profitably referred to specific historical and institutional contexts.

Mathematics, Microeconomics, Macroeconomics, Economic Policy.

Mandatory. Students are firmly suggested to attend lectures.

Part I: National Accounts*, The Goods Market*, The Financial Market*, The IS-LM-BP Model and the International Economic Policy*, The Phillips Curve*, The Expectations Theories*, The AD-AS Model, the Equilibrium of the Economy and the Full Employment*, A Keynesian Model for Macroeconomic Equilibrium*, Inflation and Sovereign Debt*, The overshooting of the exchange rate*, Introduction to DSGE Macroeconomic models*, Econometric Policy Evaluation, Optimal Currency Areas*.

Part II: Introduction to Econophysics, The Efficient Market Hypothesis*, Random walk*, Lévy stochastic processes and limit theorems*, Scales in financial data*, Stationarity and time correlation*, Time correlation in financial time series*, Stochastic models of price dynamics*, Scaling and its breakdown*, Arch and Garch processes*, Econophysics Review I: Empirical Facts*.

Part III: Econophysics Review II: Agent-Based Models*, Behavioral Macroeconomics and Macroeconomic Behavior*, Alternative Paradigms for Economic Policy*, Agent-based Macro*, Towards a not too rational macroeconomics*, The representative agent framework: limits and critique*.

A star, *, indicates the topics without which the exam cannot be passed

1. Part I:
   - Handouts on International Macroeconomic Policy (see below); - Scientific Articles on Macroeconomics, (see below).

2. Part II:
   - Mantegna R.N. – Stanley H.E., An Introduction to Econophysics. Cambridge University Press, 2000, chapters 1-10.

   - Scientific Articles on statistical properties of Financial Markets, (see below).

3. Part III:
   - Scientific Articles on Agent-Based Models for Macroeconomic Analysis, (see below).

Students may refer to the Studium page of the course for Handouts. Library Services provide students with the access to the Scientific Journals where they may find papers included in the program.

Regular exam consists of a preliminary written test followed, in case of success, by the oral test.

The course is divided in three parts. During the reading week, regularly attending students will do a test on the first half of the program taught. The test is written; two out of three questions must be successfully answered to pass.

At the end of the course, regularly attending students who passed the half-term test, may do a complementary test on the second half of the program taught. The test is written; two out of three questions must be successfully answered to pass. Students who pass both the half-term and the final-term tests will be considered successful for the final exam: the final mark will be the arithmetic mean of the two scores obtained in partial tests.

1. Describe new policy approaches to dampen financial fluctuations: can you report which advantages they have with respect to mainstream theories?

2. Which role is played by the topology for the spreading of imitation among traders in financial markets? Does it affect the applicability of stabilization policies?

3. Do you think instruments exist in order to anticipate financial crises? Give your detailed opinion about the Basle Regulations for banking activities.

4. Describe the Rational Expectation Model and the Efficient Market Hypothesis and discuss their forecasting capacity for macroeconomic variables. Do you think that predictability exists in macroeconomics?