Macroeconomic Policy and Global Capital Markets (FINC-473)

What drives the global economy? How does government policy affect economic and financial conditions? This course focuses on the economic forces and the policy responses relevant for business, investment, and growth strategies.

Measurement underlies all analysis, so we begin by learning how to interpret data on national and international economic activity, with particular attention to the measurement of output and inflation. We then study patterns of economic growth in the long run, including the status of advanced economies, and growth in emerging markets.

Our focus then turns to two key markets: the market for labor, and the market for capital. We study key trends and cyclical changes in labor markets, connecting them to rising inequality. Credit and financial markets play a crucial role in the process of capital accumulation but are also prone to crises. We study their role in both driving growth, and propagating downturns.

We then shift attention to economic policy, starting with monetary policy. Monetary policy has been transformed by the Global Financial Crises and the COVID-19 crisis, and the rapid onset of inflation that followed. We study monetary policy decisions and their effect on financial institutions and credit markets. This includes both conventional policies and quantitative easing as implemented, and now expanded, by Central Banks around the world.

We then turn to fiscal policy. Fiscal policy is the other main tool of macro policy, which also directly interacts with financial markets through sovereign debt, such as the Treasury market, the largest and (usually) most liquid market in the world. We consider government spending and the revenue programs that fund it, plus the government liabilities that result when revenues fall short of expenditures. The sustainability of sovereign debt is a key issue, as budget deficits have ballooned with COVID-related fiscal expansions, and we analyze it in detail.

Since these markets are global, capital flows, trade balances, and the relative strength of currencies are behind all of these discussions. We look at these considerations explicitly as we pull together the topics at the conclusion of the course.

[Click here for the syllabus to the Winter 2024 course.]
[Click here for teaching evaluations.]

Prerequisites:
Finance I (FINC-430-0).

This course counts toward the Finance major.