This course is the third course in the sequence of macroeconomics after an introductory course and a first course in macroeconomics (Macroeconomics I). It involves two major steps: The most important step is methodological, the introduction to a fully consistent framework where most of the issues are addressed. The framework is a simplification of the real business cycle, dynamic general equilibrium model. This simplification is possible because the issues that are treated are the ones of the small open economy, so that the real business cycle model can be solved in a simple way. The analysis of the open economy is the second, substantive step. In Macroeconomics I, only the closed economy is studied. The students are expected to apply the material presented in the lectures to new problems. For this purpose, roughly every week they are expected to solve a set of problems of which some will be subject to evaluation. Only after those mini-tests, the solution of the problems is presented. Unfortunately there is not one single book that is satisfactory. The book by J. Sachs and F. Larrain, Macroeconomics in the Global Economy, has material that can be used, but it is a very partial use. Most of the readings consist of the lecture notes. These notes also include a set of exercises. The reading of some papers is also suggested, such as J. Frankel, "Quantifying International Capital Mobility in the 1980's" and R. Lucas' Nobel Lecture.

Prerequisites: Macroeconomics