Understanding financial crises franklin allen and douglas gale clarendon lectures in finance. Read allen and gale 07 understanding financial crises ch3. Europe points out that financial crises have occurred at roughly 10 year. Understanding financial crises by franklin allen, douglas. Financial distress in the banking system appears to be a concern for the economy as a. Mar 22, 2007 allens main areas of interest are corporate finance, asset pricing, financial innovation and comparative financial systems. Our paper liquidity preference, market participation, and asset price volatility was actually begun by one of us in 1988, although it appeared in 1994.
For example, financial markets may be bad for risk sharing. Bubbles may relate to agency issues allen and gale, 2007. The global financial crisis of 200709 has led to an intensive research program analyzing a wide range of issues related to financial crises. Syllabus on math syllabus textbook allen and gale 2007 understanding financial crisis, oxford university press. Franklin allen, douglas gale this is a nice book if youre looking for a coherent overview of theoretical models of financial crises. Allen hf, gale d, 2017, how should bank liquidity be regulated. This paper provides a selected survey of the literature on financial crises. Use the link below to share a fulltext version of this article with your friends and colleagues. Our interest in bank runs and financial crises began with optimal financial crises, and this led to further studies on the welfare economics of crises. Understanding financial crises franklin allen, douglas gale. They happened in developing and developed countries. Classical references are minsky 1975 and kindleberger 1976. Sorry, we are unable to provide the full text but you may find it at the following locations.
Students will learn to present an economic analysis in a coherent and. Every nancial crisis is di erent and involves its own distinctive elements. They find that systemic banking crises are typically preceded by credit booms and asset price bubbles. Panics occur when depositors perceive that the returns on bank assets are going to be unusually low. Dutch tulipmania, south sea bubble, japan in the 80s and 90s etc. Allen and gale 2004, reprinted here as reading 11 develop a general equilibrium framework for understanding the normative aspects of crises. Jul 19, 20 the global financial crisis of 200709 has led to an intensive research program analyzing a wide range of issues related to financial crises. Ayhan kose, luc laeven, and fabian valencia by now, the tectonic damage left by the global financial crisis of 200709 has been well documented. A financial crisis is often an amalgam of events, but it is often preceded by asset and. Can financial crises be anticipated or even avoided.
The other references constitute additional basic literature on each topic. Wharton financial institutions center working paper no. Financial crises often follow what appear to be bubbles in asset prices. The course will be based on articles and on the book entitled understanding. Students will learn how to extract the gist and intellectual insight of research papers even without necessary understanding all their analytical contents. Allen and gale 2007 in their book understanding financial crises document the following. Bubbles are caused by agency relationships in the banking sector.
The disadvan tage of treating contagion as a sunspot phenomenon is that, with out some real connection between different regions, any pattern of correlations is possible. Understanding financial crises franklin allen, douglas. Other situations that are often called financial crises include stock market crashes and the bursting of. Allens main areas of interest are corporate finance, asset pricing, financial innovation and comparative financial systems. World per capita output, which typically expands by about 2. Their combined citations are counted only for the first article. A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. Understanding financial crises franklin allen, douglas gale snippet view 2007.
High bank leverage makes the financial system more fragile and crises more likely e. Franklin allen university of pennsylvania and douglas gale. Readings financial crises economics mit opencourseware. Gale, understanding financial crises, clarendon lectures in finance, oxford university press 2007 chapter 1 brunnermeier, m. Written by two leading academics, franklin allen, former president of the american finance association, and douglas gale. Financial crises by franklin allen and douglas gale. As such, understanding financial crises requires an understanding of macro financial linkages, a. Understanding financial crises clarendon lectures in finance. Allen and gale apply risk shifting and asset substitution which. By franklin allen and douglas gale, economica, london school of economics and political science, vol. Advanced microeconomics topics econ 510 financial crisis and political economy syllabus s ergio o.
The material denoted with in the list below will be discussed in class. See imf 1998, eichengreen 2002, tirole 2002, allen and gale 2007, allen, babus, carletti 2009, allen. We take as our starting point the model presented in allen and gale 1998. Deciphering the liquidity and credit crunch 20072008. An introduction to financial crises franklin allen university of pennsylvania and douglas gale new york university august 14, 2007 this essay was prepared for the volume on financial crises that we edited in the international library of critical writings in economics series editor. Financial distress in the banking system appears to be a concern for the economy as a whole. Douglas diamond and philip dybvig 1983, bank runs, deposit insurance, and liquidity. Buy understanding financial crises clarendon lectures in finance by allen, franklin, gale, douglas isbn. Time, uncertainty, and liquidity intermediation and crises. An introduction to financial crises franklin allen. Understanding financial crises 9780199251421 allen. This is consistent with herring and wachter 2003 who show that many financial crises are the result of bubbles in real estate markets. Bubbles and crises franklin allen and douglas gale in recent.
To prevent financial crises major banking regulation is special in that there is not wide agreement on the market failures the regulation is designed to correct understanding financial crises f. Franklin allen and douglas gale 2007, understanding financial crises. Maybe less interesting to practitioners, although there are some good insights even there. Financial intermediation, loanable funds, and the real sector. Optimal financial crises franklin allen and douglas gale abstract empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots. Jeancharles rochet 2008, why are there so many banking crises. Or should financial crises be left to run their course. Theory and evidence franklin allen university of pennsylvania. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Econ 5058 w advanced topics in financial economics. Understanding financial crises franklin allen, douglas gale this is a nice book if youre looking for a coherent overview of theoretical models of financial crises. According to this view, financial crises are important because they raise the costs.
Should governments and international institutions intervene. Grading policy media disclaimer prerequisites 2 on math. Financial contagion franklin allen douglas gale jstor. Jagannathan 1988, banking panics, information and rational ex. Understanding financial crises franklin allen, douglas gale isbn. Causes, consequences, and policy responses, that includes 19 contributions examining these issues and distilling policy lessons. Motivation as history shows, financial crises often follow the burst of an asset price bubble e. The course will be based on articles and on the book entitled understanding financial crises by franklin allen and douglas gale. Investors use money borrowed from banks to invest in risky assets, which are relatively attractive because. Causes, consequences, and policy responses stijn claessens, m. Franklin allen and douglas gale 2000, financial contagion, journal of political economy 108 1, pp. Understanding financial crises clarendon lectures in.
Gale, oxford university press, 2007, clarendon lectures in finance. Qualitatively different causes of endogenous financial shocks. The basic assumptions about technology and preferences have become the standard in the literature since the appearance of the diamond and dybvig 1983 model. Written by two leading academics, franklin allen, former president of the. For instance, dellariccia, detragiache and rajan 2008 provide evidence that bank. Gale, understanding financial crises, clarendon lectures in finance, oxford university press 2007 chapters 2,3. Everyday low prices and free delivery on eligible orders. Advanced microeconomics topics econ 510 financial crisis.
This paper presents a summary of a forthcoming book, financial crises. Borrowing constraints and the net worth channel holmstrom, bengt, and jean tirole. Douglas gale received his phd in economics from the university of cambridge and was elected to a junior research fellowship at churchill college, cambridge. Leo tolstoy famously observed that \every happy family is the same.
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