Economic Crises

Readings

LEC #	TOPICS	READINGS
1	Introduction	Caballero, Ricardo J. “Macroeconomics After the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome.” Journal of Economic Perspectives 24, no. 4 (2010): 85-102. ———. “A Caricature (Model) of the World Economy.” MIT Working Paper No. 10-17; NBER Working Paper No. 16429, 2010.
2	Collateral and amplification	Bernanke B., and M. Gertler. “Agency Costs, Net Worth, and Business Fluctuations.” American Economic Review 79, no. 1 (1989): 14-31. Kiyotaki, Nobuhiro, and John Moore. “Credit Cycles.” Journal of Political Economy 105, no. 2 (1997): 211-248. (PDF - 6.4MB) Brunnermeier, Markus, and Yuliy Sannikov. “A Macroeconomics Model with a Financial Sector.” Princeton working paper, 2011. (PDF - 2.1MB) Greenwald, Bruce, and Joseph Stiglitz. “Financial Market Imperfections and Business Cycles.” Quarterly Journal of Economics 108, no. 1 (1993): 77-114. Dixit, A. “Whither Greenwald-Stiglitz?” Presentation at Joseph Stiglitz’s 60th birthday conference, Columbia University, October 24, 2003.
3	The credit crunch	Bernanke, B., and A. Blinder. “Credit, Money and Aggregate Demand.” American Economic Review 78, no. 2 (1988): 435-439. Holmstrom, Bengt, and Jean Tirole. “Financial Intermediation, Loanable Funds, and the Real Sector.” Quarterly Journal of Economics 112, no. 3 (1997): 663-691. (PDF - 2.5MB) Kashyap, Anil, and Jeremy Stein. “Monetary Policy and Bank Lending.” NBER Working Paper No. 4317, 1994. Chapter 7 in Monetary Policy. Edited by N. Gregory Mankiw. University of Chicago Press, 1997. ISBN: 9780226503097. (PDF - 1.8MB)
4	Runs, panics, and contagion	Diamond, Douglas W., and Philip H. Dybvig. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91, no. 3 (1983): 401-419. (PDF) Tirole, Jean. “Consumer Liquidity Demand.” Chapter 12 in The Theory of Corporate Finance. Princeton University Press, 2005. ISBN: 9780691125565. Caballero, Ricardo J. “Sudden Financial Arrest.” IMF Economic Review (July 20, 2010). Caballero, Ricardo, and A. Krishnamurthy. “Collective Risk Management in a Flight to Quality Episode.” Journal of Finance 63, no. 5 (2008): 2195-2230. Allen, Franklin, and Douglas Gale. “Financial Contagion.” Journal of Political Economy 108, no. 1 (2000): 1-33. Adrian, Tobias, and Hyun Song Shin. “Liquidity and Financial Contagion.” Banque de France Financial Stability Review, no. 11 (2008): 1-7. Caballero, Ricardo, and Alp Simsek. “Fire Sales in a Model of Complexity.” NBER Working Paper No. 15479, 2009. MIT Working Paper, March 2011. (PDF) Brunnermeir, Markus, and Lasse Heje Pedersen. “Market Liquidity and Funding Liquidity.” NBER Working Paper No. 12939, 2007.
5	Bubbles	Tirole, Jean. “Asset Bubbles and Overlapping Generations.” Econometrica 53, no. 6 (1985): 1499-1528. Martin, Alberto, and Jaume Ventura. “Theoretical Notes on Bubbles and the Current Crisis.” IMF Economic Review 59 (2011): 6-40. (PDF – 1.5MB) Kocherlakota, Naranaya. “Bursting Bubbles: Consequences and Cures.” Paper presented at the Macroeconomic and Policy Challenges following Financial Meltdowns Conference, International Monetary Fund. Washington DC, April 3, 2009. (PDF) Farhi, Emmanuel, and Jean Tirole. “Bubbly Liquidity.” Harvard draft paper, 2010. (PDF) Allen, Franklin, and Douglas Gale. “Bubbles and Crises.” Economic Journal 110 (2000): 236-255. Abreu, Dilip, and Markus Brunnermeier. “Bubbles and Crashes.” Econometrica 71, no. 1 (2003): 173-204.
6	Capital flows and sudden stops	Obstfeld, Maurice, and Kenneth Rogoff. “Imperfections in International Capital Markets.” Chapter 6 in Foundations of International Macroeconomics. MIT Press, 1996. ISBN: 9780262150477. Caballero, Ricardo J., and Arvind Krishnamurthy. “Bubbles and Capital Flow Volatility: Causes and Risk Management.” Journal of Monetary Economics 53, no. 1 (2006): 35-53. Blanchard, Olivier, Francesco Giavazzi, and Filipa Sa. “International Investors, the U.S. Current Account, and the Dollar.” Brookings Papers on Economic Activity 1 (2005): 1-49. (PDF) Caballero, Ricardo J., Emmanuel Farhi, and Pierre-Olivier Gourinchas. “An Equilibrium Model of Global Imbalances and Low Interest Rates.” American Economic Review 98 (1): 2008.  Caballero, Ricardo J., and Arvind Krishnamurthy. “Global Imbalances and Financial Fragility.” American Economic Review Papers and Proceedings 99, no. 2 (2009): 584-588.  Caballero, Ricardo J. “The “Other” Imbalance and the Financial Crisis” (PDF). Paolo Baffi Lecture, Bank of Italy, December 10, 2009.  Bernanke, Benjamin, Carol Bertaut, Laurie Pounder DeMarco, and Steven Kamin. “International Capital Flows and the Returns to Safe Assets in the United States, 2003-2007.” Board of Governors of the Federal Reserve System, International Finance Discussion Paper No. 1014, February 2011. Martin, Alberto, and Filippo Taddei. “International Capital Flows and Credit Market Imperfections: a Tale of Two Frictions.” Centre for Economic Policy Research, Discussion Paper No. 8131, November 2010. (PDF)
7	Appreciations and overvaluations	Kiyotaki, Nobuhiro, and John Moore. “Balance-Sheet Contagion.” The American Economic Review 92, no. 2 (2002): 46-50. Tirole, Jean. “On the Possibility of Speculation under Rational Expectations.” Econometrica 50, no. 5 (1982): 1163-1181.
8	Liquidity traps	Krugman, Paul. “Thinking About the Liquidity Trap.” Journal of the Japanese and International Economies 14 (2000): 221-237. (PDF) Svensson, Lars E. O. “Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others.” NBER Working Paper No. 10195, December 2003. Jeanne, O., and Lars E. O. Svensson. “Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank.” AER 97(1), March 2007, 474-490.