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Introducing Valuation Effects-Based External Balance Analysis into the Undergraduate Macroeconomics Curricula: A Simple Framework with Applications

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  • Peter Brust
  • Vivekanand Jayakumar

Abstract

Global imbalances and the sustainability of large U.S. current account deficits have dominated international macroeconomics of late. Pedagogically, a clear disconnect exists between graduate-level open-economy macroeconomics that emphasizes intertemporal current account models and net foreign asset adjustment featuring valuation effects, and, undergraduate macroeconomics that is still driven by static analysis of U.S. current account deficits and cursory coverage of valuation-effects-driven external balance adjustment. The authors of this article discuss a simple intertemporal framework, based on modern open-economy macroeconomic models, that emphasizes the significance of valuation effects arising from changes in asset prices and exchange rates. The authors also highlight the relevance of the framework by examining a few topical applications related to prominent puzzles and debates in open-economy macroeconomics.

Suggested Citation

  • Peter Brust & Vivekanand Jayakumar, 2012. "Introducing Valuation Effects-Based External Balance Analysis into the Undergraduate Macroeconomics Curricula: A Simple Framework with Applications," The Journal of Economic Education, Taylor & Francis Journals, vol. 43(4), pages 363-376, October.
  • Handle: RePEc:taf:jeduce:v:43:y:2012:i:4:p:363-376
    DOI: 10.1080/00220485.2012.714308
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    References listed on IDEAS

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    1. Congressional Budget Office, 2012. "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 43539, Congressional Budget Office.
    2. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
    3. Ben S. Bernanke, 2007. "Global imbalances: recent developments and prospects," Speech 317, Board of Governors of the Federal Reserve System (U.S.).
    4. World Bank, 2011. "Global Development Horizons 2011 : Multipolarity - The New Global Economy," World Bank Publications, The World Bank, number 2313.
    5. Congressional Budget Office, 2012. "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 43539, Congressional Budget Office.
    6. repec:cbo:report:42905 is not listed on IDEAS
    7. repec:cbo:report:43539 is not listed on IDEAS
    8. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
    9. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
    10. Congressional Budget Office, 2012. "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 43539, Congressional Budget Office.
    11. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
    12. repec:fip:fedgsq:y:2007:i:sep11 is not listed on IDEAS
    13. Congressional Budget Office, 2012. "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 43539, Congressional Budget Office.
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