Applied Economics and Management 632
Open Economy Analysis - First Half
This assignment counts for 50% of your grade for the first half of the course It is due at the end of the first half of the course and is expected to be no more than 10 pages long (not including tables or graphs). Shorter papers are OK too, since it has long been my belief that conciseness is a virtue. If you give me a draft before the due date, I will be happy to give you comments. Drafts given on or after the due date may get comments, but I can’t promise them.
The paper is intended to get you to write a summary of the current macro situation for the country of your choice. This summary must include a review of the relevant data, some simple numerical calculations, a review of current policy, and a brief statement of what policy should be in the near future. Please cover the following points:
1. What has been the record over the past decades in terms of growth? Has it been steady or have there been episodes of fast and slow growth? Can you say why? Has any sector been particularly important as a contributor to overall growth? (This could be answered in terms of productive sectors, i.e. agriculture, manufacturing, etc. or in terms of exports or remittances, for example.)
2. What has been the record in terms of inflation over the past 10-15 years? Has it been steady or have there been episodes of high and low inflation?
3. What has been the record in terms of fiscal deficits over the past 10-15 years? Have deficits coincided with periods of inflation?
4. What is the current exchange rate regime? What is the nominal exchange rate and how has it evolved over the past 10-15 years? Calculate a real exchange rate index using some measure of inflation (e.g. the CPI or the GDP deflator). How has it changed over the past 10-15 years?
5. What are the important exports and imports in this country? How have they grown over the past 10-15 years? (Try to answer this in both physical and value terms). What has happened to net exports? (i.e. X - M) Do these changes appear to be correlated to changes in the real exchange rate index you calculated in 4 above?
6. What is the size and composition of the country’s foreign debt? What are the debt and debt service ratios? Who are the creditors? Has debt grown or shrunk over the past 20 years? How about debt relative to exports and GDP?
7. If you were Minister of the Economy, what would your recommendation be for the course of economic policy over the next few years?