International Finance

Introduction

All countries in the world, and small open economies like Norway in particular, must understand the basics of international finance. The goal of this course is to provide both solid foundations about the topic and selected exposure to relevant current research. The course will have a strong emphasis on the interaction between international finance and macroeconomics. Students are expected to openly discuss and provide comments on recently published papers and ongoing working papers.

Course content

The course is a mix of fundamental concepts and puzzles in international finance and current active research areas. The emphasis will be on the work providing a bridge between macroeconomics and finance. Classes will be a mixture of lectures and students’ presentations. The course is roughly divided in four parts:

• The Forward Premium Anomaly and the Currency Carry Trade
• Completeness vs. Incompleteness, and Integration vs. Segmentation
• General Equilibrium and International Risk Sharing
• Ad hoc topics: Capital Flows, Global Imbalances, Information Asymmetry, Portfolio Allocation, Financial Integration

Two excellent reviews of long-lasting puzzles in international macro and finance are:

From a macro perspective:

Maurice Obstfeld, Kenneth Rogoff, “The Six Major Puzzles in International

Macroeconomics: Is There a Common Cause?” NBER Macroeconomics Annual 2000, Volume 15

From a finance perspective:

Lewis Karen, “Puzzles in international financial markets”, 1995, Handbook of International Economics