Working Through Feenstra's International Macro Problem Sets
The solutions manual for Feenstra's Introduction to International Macroeconomics covers the core model derivations most students stumble on. The book assumes you can follow the algebra quickly, which is generous. The open-economy IS-LM, the Mundell-Fleming framework, and the exchange-rate models all build on each other, and skipping steps creates confusion fast. Start by deriving the key equations yourself before looking at any walkthrough. Write out the goods-market equilibrium, the money-market equilibrium, and the BP curve from scratch. The manual shortcuts a lot of the intermediate algebra. If you don't reconstruct the IS-LM shift derivations independently, you will miss why the slopes change when capital mobility varies. That distinction matters for every policy question after chapter four. The exchange-rate section trips people up most. The flexible-price monetary approach, the sticky-price short run, and the overshooting mechanism are three separate regimes. Solutions manuals sometimes blur them together because they come from the same chapter. I learned this the hard way during a midterm where I applied the long-run monetary model elasticity to a short-run question and lost half the points. The manual shows the steady-state result first, then the dynamic adjustment. Read both. Do not conflate them.
One specific edge case I keep running into involves the J-curve derivation in the trade-balance section. The manual presents the Marshall-Lerner condition cleanly, but the actual time-path simulation requires assuming a specific import-response lag structure. When I worked through a problem set with country-specific import elasticities of negative 0.6 instead of the textbook's standard negative 1.0, the initial depreciation actually worsened the balance for two full quarters before reversing. The generic solution glosses over that timing mismatch. I resolved it by recalculating the integral for the trade balance with the altered elasticity coefficient and checking the sign of the derivative at impact. It added about ten minutes to the problem but aligned the result with the data. Capital mobility is another area where the standard solutions hide a trap. Perfect capital mobility under floating rates gives the classic result that fiscal policy is completely ineffective. Under fixed rates, the opposite holds. But the intermediate case with partial mobility uses a BP curve that is neither horizontal nor vertical. The manual's graphs often default to the extremes because they are easier to draw. If your problem set specifies a slope, you must use that slope in the algebra. Plugging in the extreme case by habit will give you the wrong policy comparison. I made this mistake on a problem involving a BP slope of positive 0.3 and spent forty minutes debugging my own work before realizing I had assumed perfect mobility. The policy effectiveness matrix in chapter seven is the single most tested concept. Every exam version rephrases the same four scenarios. Fiscal expansion under floating with high capital mobility. Fiscal expansion under fixed with high capital mobility. Monetary expansion under floating. Monetary expansion under fixed. Memorizing the four outcomes is straightforward. Understanding why the transmission works differently is where the manual falls short. The key is tracking the interest-rate channel and the exchange-rate channel separately. When the domestic rate diverges from the world rate, capital flows adjust the exchange rate, which shifts net exports, which feeds back into the goods market. The manual compresses this chain into two lines. You need to see the full chain to solve variations the professor invents.
If you are working through the problem sets alone, use the solutions as a checkpoint, not a crutch. Derive the equilibrium output and interest rate on your own first. Then compare your IS-LM-BP diagram to the manual's version. If your slopes match but your intercepts differ, trace back which assumption changed. Most errors come from misreading the capital-flow parameter or confusing the price level assumption between the short run and the long run. The downward side of this material is that the solutions do not cover every variant. Edge cases like currency unions, terms-of-trade effects, or dynamic stochastic general equilibrium extensions appear in advanced courses and are absent from the manual entirely. If your class moves past the basic Mundell-Fleming framework, you will need supplementary notes or a graduate-level text. The Feenstra solutions are solid for the standard undergrad sequence, but they stop where the interesting macro questions begin. For the actual PDF, search the publisher's companion site for the official solutions manual linked to your edition. Third-party uploads exist but often contain misaligned problem numbers or outdated parameter values. I once used a version where the elasticity of substitution was misprinted as 2.5 instead of the correct value, which skewed every trade-balance calculation downstream. Verifying the edition number against your textbook's copyright page takes thirty seconds and prevents that entire category of error.
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