This note presents frameworks and indicators for identifying fragile economies. It includes an assessment of Morgan Stanley's Fragile Five call in 2012 as well as current fragilities data for a range of economies. This note is appropriate for use in a first-year MBA course or an advanced undergraduate- or master's-level course that deals with international economics or finance.
In 2001, the economies of Brazil, Russia, India, and China (BRICs) were predicted to grow faster than many others; this prediction turned out to be true. In this technical note, the challenge is to identify the new BRICs in 2023. Students will investigate the following questions: What are the economics behind BRICs? How do investors and managers identify the next BRIC countries (i.e., the next high-growth economies)? Could the economic frameworks underlying BRICs analysis provide some clarity after the fog of the COVID-19 pandemic and war in Europe? This note includes a short explanation of the Solow growth model, an exploration of growth factors not considered in that model, and data for emerging-market economies in 2000. Finally, it offers a range of perspectives on growth factors and suggests an updated analysis of growth prospects and possible new BRICs in 2023. At the Darden School of Business, this note is taught in the first-year core GEM course and used in the Global Financial Markets course.
The goal of this technical note is to give students tools for thinking about how exchange rates will move over a period of five years into the future. While forecasting exchange rates is arguably more art than science, managers, policymakers, and investors are nonetheless often required to form opinions about the future evolution of exchange rates. Specifically, this note defines the real exchange rate and purchasing power parity (PPP) and illustrates that PPP is useful in forecasting nominal exchange rate movements for advanced economies (AEs). For emerging market economies (EMEs), the note explains that PPP is less useful and instead offers a relatively new International Monetary Fund (IMF) model, which evaluates exchange rate over- and undervaluation in EMEs (as well as AEs). The note is designed to be used in a first-year MBA course, specifically in a class structured around exchange-rate forecasts based on recent supplemental data (to be added by the instructor). In that case, the class would build from a question like, "What will the US dollar/British pound exchange rate be in five years, and why?" Note that the IMF material is advanced and, depending on the level of the students and place in the course, may need to be presented as a useful "black box." In any case, this note could also be employed in an advanced undergraduate or master's level course on international finance or macroeconomics.
This note is an introduction to using macroeconomics in evaluating the long-term growth prospects of emerging markets. Methodologically, it is an application of growth theory, the Solow model in particular, and it gives students the opportunity to practice reading and interpreting the data of international macroeconomics. The textbook Solow growth model and its basic extensions align well with how investors and policymakers think about forecasting growth and stagnation in emerging markets. However, using public data to measure everything that affects Solow factors is not trivial or necessarily possible, so the note explains the broader, but nonetheless "Solow" approach, of Ruchir Sharma at Morgan Stanley. The note provides data on direct and indirect "canary in the coalmine" growth factors. Classes using the note should center on the question, how do we find the next BRICs? The note is designed as a practical follow-up to growth theory in a first year MBA course, but it would also be appropriate for use in a master's or advanced undergraduate course on growth, emerging markets, or international finance.
This case illustrates how exchange rate shocks affect international businesses. The focus is on one recent stark example: the effect on Swatch Group of the Swiss National Bank's January 2015 decision to end its policy of putting a ceiling on the euro/Swiss franc exchange rate. It is useful for an introductory class that defines different exchange rate concepts, illustrates why managers should care about exchange rates, and motivates/previews the study of the macroeconomics of exchange rates, capital flows, and monetary policy. This case is appropriate for use in a first-year MBA course that deals with international economics or finance, though it is written to be standalone and thus could also be employed in an advanced undergraduate or master's level course on international macroeconomics or finance.