Introducing students to empirical macroeconometrics in exchange rate determination

Students in ECO4306, International Finance, participated in a flipped classroom activity in order to increase the understanding of what determines the value of foreign currency exchange rates.  Students in this class were mostly 4th-year students majoring in Economics or studying in the Business Faculty taught by Prof. Gregory Whitten, Assistant Professor of Teaching, Department of Economics. The particular topic of the lecture was Purchasing Power Parity theory and the Monetary Approach to Exchange Rates (PPP and MAER).  These theories are classic components of international finance and macroeconomics that explain what people should expect the exchange rate between any 2 currencies to be.  As these are theories, one might ask if they are accurate; does the real world behave according to the theories?

The PPP and MAER topics lent themselves easily to flipped classroom as they are mostly self-contained topics.  Students who do not possess very strong technical skills can still conduct a simple test in order to get a flavour of whether the theory is correct and what are the challenges researchers face when testing a theoretical idea with real-world data.

After watching a video to explain these concepts and taking a post-video quiz outside lecture, students paired up in the lecture to download data and perform a simple test to the accuracy of these theories.

Later in tutorial, students presented their findings.

Students took questions from the audience to explain why they found what they found.  The students enjoyed the challenge of seeing how to take a theory and make it testable with real-world data.

Students’ feedback:

“For the online video, you learnt the theory and then the practical part was during the presentation: putting the learnt theory into practice.” (Student A)

“Yeah, I think the material we studied was good and prepared us really well for the presentation we are to do.” (Student B)

“I think my favourite thing was the video.  Everyone could go move forward in their own pace. So, sometimes, some parts might seem easy for me, so I can just let the video play and then… some other parts might may be difficult, so I can pause them and maybe go back… or look something up and… like I can kind of pause the lecture.” (Student C)

I intend to continue using the flipped classroom to teach these topics and hope to expand the practice to other topics and classes.  Sometimes it can be a little difficult to think of classroom activities that students with a wide range of abilities can undertake.  Activities in economic research often demand a strong familiarity with statistics and/or mathematics.  Finding an activity in which students lacking these skills can participate is sometimes difficult.  I am considering using a flipped classroom to replace part of a lecture with small group discussions where students discuss what they learned in the outside classroom studying (e.g., videos, reading).  Reporting back to the class after the discussions can ensure that students have indeed learned what they were supposed to learn and thought about it critically.