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Preface
This book grew out of my lecture notes for a graduate course in in-ternational macroeconomics and
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nance that I teach at the Ohio StateUniversity. The book is targeted towards second year graduate stu-dents in a Ph.D. program. The material is accessible to those who havecompleted core courses in statistics, econometrics, and macroeconomictheory typically taken in the
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rst year of graduate study.These days, there is a high level of interaction between empiricaland theoretical research. This book re
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ects this healthy developmentby integrating both theoretical and empirical issues. The theory is in-troduced by developing the canonical model in a topic area and then itspredictions are evaluated quantitatively. Both the calibration methodand standard econometric methods are covered. In many of the empir-ical applications, I have updated the data sets from the original studiesand have re-done the calculations using the Gauss programming lan-guage. The data and Gauss programs will be available for downloadingfrom my website: www.econ.ohio-state.edu/Mark.There are several di
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erent ‘camps’ in international macroeconomicsand
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nance. One of the major divisions is between the use of ad hocand optimizing models. The academic research frontier stresses thetheoretical rigor and internal consistency of fully articulated generalequilibrium models with optimizing agents. However, the ad hoc mod-els that predate optimizing models are still used in policy analysis andevidently still have something useful to say. The book strikes a middleground by providing coverage of both types of models.Some of the other divisions in the
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eld are
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exible price versus stickyprice models, rationality versus irrationality, and calibration versus sta-tistical inference. The book gives consideration to each of these ‘minidebates.’ Each approach has its good points and its bad points. Al-though many people feel
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rmly about the particular way that researchin the
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eld should be done, I believe that beginning students shouldsee a balanced treatment of the di
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erent views.Here’s a brief outline of what is to come. Chapter 1 derives somebasic relations and gives some institutional background on international
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nancial markets, national income and balance of payments accounts,and central bank operations.
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