The Economic Way of Thinking

About International Macroeconomics

Extended Lecture Notes for

Theo S. Eicher
University of Washington

© Theo S. Eicher 2002-15

Introduction Chapter 0 Page 1

PREFACE

These notes constitute readings for a one-quarter course in international

macroeconomics. There is a clear correspondence between the theory covered in
these notes and chapters in most international macroeconomics textbooks,
notably Eicher, Turnovsky and Mutti “International Economics” 7th Edition,
(2009).
The lecture notes provide a streamlined understanding of the theoretical building
blocks that can be applied to policy analysis and real world events. The chapters
are cumulative, so students follow the progressive refinements of theories and
their applications. The goal is to teach not only open economy macroeconomics,
but also to develop an economic way to thinking about international
macroeconomics.

Each chapter presents an economic framework as well as a policy applications

that use the models to analyze real world examples. I follow the approach to
learning economics that was put forth by Alfred Marshall (in his letter to A. L.
Bowley, 1906): “(1) Translate equations into English; (2) illustrate by examples
that are important in real life; (3) if you can’t succeed in 2, burn 1.”

I am grateful to many students who have taken their time to read and critique
versions of these notes. Richard Kim assisted in writing the Essential
Terminology chapter and provided editing for many more; Andrew McCallum
contributed to the History of the Exchange Rate Systems Chapter and also
provided editing support. Dave Coble, Jae Chong, Haideh Salehi Esfahani,
Florian Pfister, and especially Andreas Leukert provided insightful comments on
selected chapters. Julio Saavedra provided the first comprehensive editing
overhaul in 2003. Important text was added during a major revision that yielded
material for Eicher, Mutti, and Turnovsky “International Economics” (Routledge,
7th Edition 2009). Since then Aida Nadzirah, Alwin Tan, David Cohen, and
especially Nils Enevoldsen, Ngan (Katrina) Klepper, Ying Tang, and Fabliha Ibnat
provided suggestions to improve the most recent version of the notes and case
studies.

An entire set of review notes is provided in the appendix of this chapter to allow
students the opportunity to review crucial background material for this class.
This review is voluntary and optional. The material covered in the appendix is a
prerequisite for this class and should have been covered and understood before
starting this class. The material is fundamental to every aspect of this class.

Introduction Chapter 0 Page 2