Page last updated: 27 January 2012

Bubbles, Panics and Crashes: A Long Period

Assessment of the Causes and Consequences of Financial Crises

Module Code: ECO00018H Credits: 20 Year: 3 Terms: 1-2

Contact Hours:

17 one-hour Lectures, 1 one-hour revision Lecture at the end

of the Spring Term, 4 one and a half hour Seminars, (24

contact hours)

Module Organiser: Professor S Bowden

Overview: This module explores the recurrence of financial crises in the international economy

from a long period perspective. The module is divided into two parts: lectures 1 through 6 provide an overview of recurring theories, themes and applications; lectures

7 through 16 take a more systematic case study approach, applying these ideas to the Great Depression, the 1997 Crisis and the recent Credit Crunch.

Aims: To introduce students to the:

Recurrent nature of financial crises Nature and causes of speculative booms Importance of the role of the lender of last resort

Role played by regulation, liquidity and credit constraints Extent to which monetary expansion underpins such crises

To enable students to:

Evaluate the economic cost of such crises

Appreciate how, in given time periods, policy responses may or may not have been appropriate

Objectives: On completing the module, students will have a clearer understanding of the:

Recurrent nature of financial crises Nature and causes of speculative booms

Importance of the role of the lender of last resort Role played by regulation, liquidity and credit constraints Extent to which monetary expansion underpins such crises

Economic cost of such crises, and How, in given time periods, policy responses may or may not have been

appropriate Assessment:

The module is assessed by a 2½-hour written unseen examination during the Summer Term.

Page last updated: 27 January 2012

Pre-requisites:

The module is only available for students registered for L100 Economics, LV13 Economics with Economic History, and L112 Economics and Finance.

In particular, the following prerequisites will apply:

Historical Perspectives on Long Run Growth (ECO00007C) Macroeconomics 2 (ECO00002I) Microeconomics 2 (ECO00001I)

Preliminary Outline of Topics

1. Introduction to the module and seminar organisation 2. Financial crises in historical perspective: speculative manias from Dutch tulips

in the 17th century to real estate speculation in the 1980s: a long period

overview 3. Financial crises in historical perspective: monetary expansion: a long period

overview 4. Financial crises in historical perspective: domestic and international contagion

and propagation

5. Financial crises in historical perspective: lenders of last resort 6. The severity of financial crises in historical perspective; measuring the real

economic effects of financial crises: a long period overview 7. The Wall Street Crash and the Great Depression – fundamental issues 8. Financial speculation and the Wall Street Crash of 1929

9. The international impact of the Great Depression 10.Recovery from the Great Depression

11.The rise of the Asian Tigers: an applied Solow model or the pre-conditions for crisis?

12.The 1997 collapse of the Asian Tigers: fundamentals v financial panics

explanations 13.Lender of last resort: the role of the IMF in the collapse and ? recovery of the

Asian Tigers 14.Recovery from 1997: policies and lessons 15.Credit crunch 2008 style: the globalisation of international finance

16.Credit crunch 2008 style: structure and regulation of financial markets 17.Credit crunch 2009: The World Economy under Stress: international and

national policy responses

Page last updated: 27 January 2012

Main References:

Bayoumi, Tamin (2001), ‘The Morning After: Explaining the Slowdown in Japanese Growth in the 1990s’, Journal of International Economics, Vol. 53,

No 2, pp. 241-259. Brunnermeier, Markus K ‘Deciphering the Liquidity and Credit Crunch, 2007-

2008’, Journal of Economic Perspectives, Vol. 23, No. 1, Winter 2009, pp 77-100 (available via E-Journals).

Capie, F and Wood, G (eds), Financial Crises and the World Banking System,

London 1986, see in particular chapters by Schwartz and Bordo. Clavin, Patricia (2000), The Great Depression in Europe 1929 – 1939,

Macmillan. Collins, S. and Bosworth, B. (1996), ‘Economic growth in East Asia:

Accumulation versus assimilation’, Brookings Papers on Economic Activity,

Vol 2, pp. 47-89. Crafts, N.F.R. (1999), ‘East Asian growth before and after the crisis’, IMF Staff

Papers, 446, 139-166. Dadush, Uri et al, Private Capital Flows in the Age of Globalization: The

Aftermath of the Asian Crisis (2000).

Eichengreen, Barry (1996), The Gold Standard and the Great Depression, New York: Oxford University Press.

Eichengreen, Barry, “Globalizing Capital: A History of the International Monetary System”, 1996, Princeton University Press.

Ferguson, Niall, The Ascent of Money; A Financial History of the World, Penguin

Paperback, 2009. International Monetary Fund, (December 2008), World Economy under Stress,

Finance and Development (available on line via imf.org) – see in particular papers by Sacasa, Blanchard, Collyns, Classens et al and Kang and Miniane.

International Monetary Fund, (June 2008), The Financial Market Crisis, Finance

and Development, Vol. 45, No. 2, (available on line via imf.org) see in particular papers by Kodres, Dodd and Mills, Hoe Ee and Xiong, Dorsey and

Ghosh. Ash Demirguc Kent and Luis Serven, ‘Are the Sacred Cows Dead? Implications

of the Financial Crisis for Macro and Financial Policies’, World Bank, Policy

Research Working Paper no 4807, January 2009 (available via the World Bank web site: www.worldbank.org)

Kenen, Peter (32004), ‘Appriasing the IMF’s Performance. Finance & Development, Quarterly Magazine of the IMF, March, Volume 41, Number 1.

Available via www.imf.org/external/pubs. Kindleberger, Charles P, Manias, Panics and Crashes: A History of Financial

Crises, 3rd edition, 1996.

Kindleberger, Charles P and J-P. Laffargue (eds), Financial Crises: Theory, History and Policy, Cambridge, CUP: 1982, see in particular the chapter by

Minksy. Krugman, Paul (1994), ‘The myth of Asia’s miracle’, Foreign Affairs, Vol. 73,

No 6, pp. 62-78.

Ito, T. (1996), ‘Japan and the Asian economies: a ‘miracle’ in transition’, Brookings Papers in Economic Activity, Vol. 2, pp. 205-272.

Lee, Jong-Wha and Changyong Rhee, (1999), ‘Social Impacts of the Asian Crisis: Policy Challenges and Lessons’ Human Development Report Background papers (available from the www.undp.org/hdro web site).

Nelson, Richard R and Howard Peck, The Asian Miracle and Modern Growth Theory’, Economic Journal (1999), No. 109, (July) pp 416-436.

Radelet, S. & J. Sachs, 'The East Asian financial crisis', Brookings Papers on Economic Activity, No. I (1998)

Page last updated: 27 January 2012

Temin, Peter(1994), The Great Depression, National Bureau of Economic

Research, NBER Working Papers, No. 62. Temin, Peter, (1989), Lessons from the Great Depression, MIT Press.

Temin, Peter, (2003) ‘The Great Depression’ in Joel Mokyr (ed), The Oxford Encyclopaedia of Economic History, vol. 2, pp. 459-466

Willett, TD., A Budiman, A. Denzau, G.J. Jo, C. Ramos and J. Thomas, ‘The falsification of four popular hypotheses about the Asian crisis’, World Economy, (January 2004), Vol. 27, No. 1, pp. 25-44.

Woo, Wing-Thye, et al., (2000), The Asian financial crisis, MIT Press. World Bank (1998), East Asia: The Road to Recovery, Washington DC.