This course presents a comprehensive approach for corporate decision-making with macroeconomic uncertainty. Based on the short-comings of traditional approaches the course will focus on the advantages of the Macroeconomic Uncertainty Strategy (MUST) - analysis. The approach remedies the short-comings of the traditional methods by recognizing the interdependence between macroeconomic variables (exchange rates, interest rates and inflation) and the need for a multivariate model framework. The approach also handles the criticism of traditional methods by being dynamic and by avoiding the partiality of the traditional methods.
The course will start by identifying the macroeconomic environment of the firm and by discussing the role of financial and economic integration for the transmission of macroeconomic fluctuations from one country to another. After having studied patterns of historical macroeconomic fluctuation it will be discussed why so little attention is currently given to the impact of these fluctuations on corporate performance. Traditional measures of the macroeconomic exposure and of the macroeconomic impact on the firm are briefly discussed and their shortcomings highlighted. The course then sets out to discuss the different elements of the MUST-analysis and its three pillars ¿ the fundamental analysis, estimation of sensitivity coefficients and development of a strategy. The importance of finding the sustainable performance in different context by filtering out temporary macroeconomic performance is then highlighted and discussed. A take-home assignment on the filtering of performance is handed out. Finally, ways of evaluating the use of the MUST-approach is discussed.
School of Business and Law