Economic Crises

Readings

The required readings are indicated with a star symbol (*). The remaining readings include useful references, which might be covered briefly during the course.

Lecture 1: Introduction

• Luttrell, D., T. Atkinson, and H. Rosenblum, “Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath,” Dallas Fed Economic Letter 8(7), September 2013.
• Allen, F., E. Carletti, J.P. Krahnen, and M. Tyrell, “An Introduction to Liquidity and Crises,” in Liquidity and Crises, (Eds.) (same authors), Oxford University Press, 3–32, 2011.
• Ball, L.M., “The Fed and Lehman Brothers,” Cambridge University Press, June 2018.
• Caballero, R.J., “Macroeconomics After the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome.” Journal of Economic Perspectives, 85–102, Fall 2010.
• Blanchard, O.J., G. Dell’Ariccia, and P. Mauro, “Rethinking Macroeconomic Policy,” Journal of Money, Credit and Banking 42(s1), 199–215, September 2010.
• Caballero, R.J., “Crisis and Reform: Managing Systemic Risk” (PDF), Rivista di Politica Economica 99(4), 9–64, October-December 2009.
• Calomiris, Ch.W., and M.S. Jaremiski, “The Puzzling Persistence of Financial Crises,” NBER Working Paper 32212, March 2024.

Lecture 2: Collateral and Amplification

• * Bernanke, B., and M. Gertler, “Agency Costs, Net Worth, and Business Fluctuations” (PDF), American Economic Review 79(1), 14–31, March 1989.
• * Kiyotaki, N., and J. Moore, “Credit Cycles,” Journal of Political Economy 105(2), 211–248, April 1997.
• Mian, A., and A. Sufi, “What Explains the 2007-2009 Drop in Employment?,” Econometrica 82(6), 2197–2223, November 2014.
• Greenwald, B.C., and J.E. Stiglitz, “Financial Market Imperfections and Business Cycles,” Quarterly Journal of Economics 108(1), 77–114, February 1993.
• Dixit, A., “Whither Greenwald-Stiglitz?" Presentation at Joseph Stiglitz’s 60th birthday conference, Columbia University, October 24, 2003.
• Tang, K., and H. Zhu, “Commodities as Collateral,” Review of Financial Studies 29(8), 2110–2160, August 2016.
• Brunnermeier, M.K., and Y. Sannikov, “A Macroeconomic Model with a Financial Sector,” American Economic Review 104(2), 379–421, February 2014.
• Krishnamurthy, A., “Collateral Constraints and Its Amplification Mechanism,” Journal of Economic Theory 111(2), 277–292, August 2003.

Lecture 3: The Credit Crunch

• * Holmstrom, B., and J. Tirole, “Financial Intermediation, Loanable Funds, and the Real Sector,” Quarterly Journal of Economics 112(3), 663–691, August 1997.
• Kashyap, A., and J. Stein, “Monetary Policy and Bank Lending” (PDF), in Monetary Policy, (Ed.) N.G. Mankiw, NBER, 221–262, 1994.
• Hanson, S., and J. Stein, “Monetary Policy and Long-Term Real Rates,” Journal of Financial Economics 115(3), 55–109, March 2015.
• Bernanke, B., and A. Blinder, “Credit, Money, and Aggregate Demand,” American Economic Review 78(2), 435–439, May 1988.

Lecture 4: Runs, Panics, and Contagion

• * Diamond, D.W., and P.H. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity” (PDF), Journal of Political Economy 91(3), 401–419, June 1983.
• * Allen, F., and D. Gale, “Financial Contagion,” Journal of Political Economy 108(1), 1–33, February 2000.
• Gorton, G.B., and A. Metrick, “Securitized Banking and the Run on Repo,” Journal of Financial Economics 104(3), 425–451, June 2012.
• Acharya, V., D. Gale, and T. Yorulmazer, “Rollover Risk and Market Freezes” (PDF), The Journal of Finance 66(4), 1177–1209, August 2011.
• Tirole, J., The Theory of Corporate Finance, Princeton University Press, 2006 (chapter 12).
• Caballero, R.J., “Sudden Financial Arrest” (PDF), IMF Economic Review, July 20, 2010.
• Adrian, T., and H.S. Shin, “Liquidity and Financial Contagion,” Financial Stability Review 11, Banque de France, 1–7, February 2008.
• Caballero, R.J., and A. Simsek, “Fire Sales in a Model of Complexity” (PDF), Journal of Finance 68(6), 2549–2587, August 2013.
• Brunnermeier, M., and L. Pedersen, “Market Liquidity and Funding Liquidity” (PDF), Review of Financial Studies, 22(6), 2201–2238, November 2008.
• Jacklin, C.J, “Demand Deposits, Trading Restrictions, and Risk Sharing,” in Contractual Arrangements for Intertemporal Trade, (Eds.) E.C. Prescott, N. Wallace, 1987.
• Metrick, A., and P. Schmelzing, “The March 2023 Bank Interventions in Long-Run Context—Silicon Valley Bank and Beyond,” NBER Working Paper 31066, March 2023.
• Cetorelli, N., M. Landoni, and L. Lu, “Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities,” Federal Reserve Bank of New York Staff Reports 1057, March 2023.

Lecture 5: Bubbles and Credit Booms

• * Tirole, J., “Asset Bubbles and Overlapping Generations,” Econometrica 53(6), 1499–1528, November 1985.
• * Allen, F., and D. Gale, “Bubbles and Crises,” Economic Journal 460(110), 236–255, January 2000.
• * Abreu, D., and M. Brunnermeier, “Bubbles and Crashes,” Econometrica 71(1), 173–204, November 2003.
• * Harrison, J.M., and D.M. Kreps, “Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations,” Quarterly Journal of Economics 92(2), 323–336, May 1978.
• * Martin, A., and J. Ventura, “Managing Credit Bubbles” (PDF), Journal of the European Economic Association 14(3), 753–89, June 2016.
• *Lorenzoni, G., “Inefficient Credit Booms” (PDF), Review of Economic Studies 75(3), 809–833, July 2008.
• Woodford, M., “Stationary Sunspot Equilibria in a Finance-Constrained Economy,” Journal of Economic Theory 40(1), October 1986.
• Carvalho, V.M., A. Martin, and J. Ventura, “Understanding Bubbly Episodes,” American Economic Review: Papers & Proceedings 102(3), 95–100, May 2012.
• Kocherlakota, N., “Bursting Bubbles: Consequences and Cures” (PDF), Paper presented at the Macroeconomic and Policy Challenges Following Financial Meltdowns Conference, 2009. 
• Davila, E., and A. Korinek, “Pecuniary Externalities in Economies with Financial Frictions,” Review of Economic Studies 85(1), 352–395, January 2018.
• Gourinchas, P.O., R. Valdes, and O. Landerretche, “Lending Booms: Latin America and the World” (PDF), Economia Journal 1(2), Spring 2001.
• Farhi, E., and J. Tirole, “Bubbly Liquidity,” Review of Economic Studies 79(2), 678–706, April 2012.
• Brunnermeier, M.K., and I. Schnabel, “Bubbles and Central Banks: Historical Perspectives,” in Central Banks at a Crossroads—What Can We Learn from History?, Cambridge University Press, 493–562, 2016.
• Jorda, O., M. Schularick, and A. Taylor, “Leveraged Bubbles,” Journal of Monetary Economics 76(S), S1–S20, December 2015.
• Brunnermeier, M.K., and M. Oehmke, “Bubbles, Financial Crises, and Systemic Risk,” in Handbook of the Economics of Finance, Vol 2, 2013.

Lecture 6: Liquidity Traps and Leverage

• * Eggertsson, G.B., and P. Krugman, “Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach,” Quarterly Journal of Economics 127(3), 1469–1513, July 2012.
• * Korinek, A., and A. Simsek, “Liquidity Trap and Excessive Leverage,” American Economic Review 106(3): 699–738, March 2016.
• Kocherlakota, N., “Impact of a Land Price Fall When Labor Markets are Incomplete,” Federal Reserve Bank of Minneapolis, April 2013.
• Guerrieri, V., and G. Lorenzoni, “Credit Crises, Precautionary Savings, and the Liquidity Trap” (PDF), Quarterly Journal of Economics 132(3), 1427–1467, August 2017.
• Farhi, E., and I. Werning, “A Theory of Macroprudential Policies in the Presence of Nominal Rigidities” (PDF), Econometrica 84(5), September 2016.

Lecture 7: Capital Flows and Financial Crises

• * Lorenzoni, G., “International Financial Crises,” Handbook of International Economics, Volume 4, (Eds.) G. Gopinath, E. Helpman, K. Rogoff, 689–740, 2014.
• * Caballero, R.J., and A. Krishnamurthy, “Bubbles and Capital Flow Volatility: Causes and Risk Management,” Journal of Monetary Economics 53(1), 35–53, January 2006.
• Bianchi, J., and G. Lorenzoni, “The Prudential Use of Capital Controls and Foreign Currency Reserves,” Handbook of International Economics, Volume 6, (Eds.) G. Gopinath, E. Helpman, K. Rogoff, 237–289, 2022.
• Bocola, L., and G. Lorenzoni, “Financial Crises, Dollarization, and Lending of Last Resort in Open Economies,” American Economic Review 110(8), 2524–2557, August 2020.
• Obstfeld, M., and K. Rogoff. Foundations of International Macroeconomics, Chapter 6, The MIT Press, Cambridge MA.
• Caballero, R.J., and A. Simsek, “A Model of Fickle Capital Flows and Retrenchment,” Journal of Political Economy 128(6), August 2020.
• Caballero, R.J., E. Farhi, and P.O. Gourinchas, “An Equilibrium Model of ‘Global Imbalances’ and Low Interest Rates,” American Economic Review 98(1), 358–393, March 2008.