Development Finance

A dinosaur
LecturerMasakazu SOMEYA, Associate Professor
DepartmentGraduate School of International Development, 2021 Spring
Recommended for:Master's program and Doctoral course

Goals of the course

The objectives of this course, Development Finance, are two-holds. Firstly, the students will learn the Mundell-Fleming Model and acquire how to handle the model to analyze the impact of fiscal and monetary policy. Developing countries are vulnerable to and less resilient against external shocks. Understanding the consequence of fiscal and monetary policy in an open economy is crucial in sound economic management. Secondly, the students will learn financial market theory and risk management. The roles of banking sector, financial instruments and financial market in developing countries have become critical than ever in last few decades. This is because its congenial and detrimental reverberation on other sectors and other countries have been magnified by financial globalization and recognized so by the international community since the Asian crisis and even more after the Lehman shocks. The course will be always discussed in the context of developing countries and be conducted with many hand-on exercised based on spread sheet software.

Objectives of the Course

The students will learn international finance and monetary policy and be able to make an economic analysis in the area of international finance and monetary policy.

Textbook/Reference Book

  • Gregory Mankiw, 2016, Macroeconomics (9th edition), Macmillan Education, ISBN-10:1319243584
  • F. S. Mishkin, 2016, The Economics of Money, Banking, and Financial Market, Pearson, ISBN-10:1292268859
  • Paul Grugman, 2018, International Economics Theory and Policy, (11th edition) , Pearson, ISBN-10:9781292216355

Course Content

Week Content
1 Brief Revision of IS-LM Analysis
2 Fiscal and Monetary Policy in Mundell-Fleming Model under Fixed Exchange Regime
3 Fiscal and Monetary Policy in Mundell-Fleming Model under Free-Float.
4 Bond pricing and how bonds market functions to determine long term interest rate is explained with linkage among financial markets, government and real sector through bond market.
5 Yield curve and term structure are analyzed with expectation , spot and forward rate, and arbitrage condition. Bootstrapping and regressions are used to construct yield curve.
6 Monetary Approach to Exchange Rate: PPP and Uncovered Interest Parity
7 Monetary Model of the Balance of Payments
8 Introduction to Intertemporal Optimization
9 Intertemporal Trade and the Current Account Balance
10 Portfolio theory and optimization of portfolio in a two asset framework with risk minimization. Sharp ratios, reward-to-variability and capital allocation lines are covered.
11 Monetary Policy, Duration, convexity and immunization strategy in View of Risk management for Banking Sector.
12 Capital Asset Pricing Model (CAPM), Discounted Dividend Model (DDM), auto-regressive model and factor model are introduced.
13 Monte Carlo simulation with brief reviews on statistics and statistical distribution.
14 Value-at-Risk by historical data method and delta method.
15 Value-at-Risk by stochastic simulation.

Lecture materials

Development Finance: Part 1, Exchange Rate

Course Evaluation Method

In-class quiz and homework (30%), mid-term exam (35%) and final exam (35%).

Last updated

December 13, 2021