NEW YORK UNIVERSITY
Stern School of Business
Corporate Finance and Financial Crises
B40.3328
Franklin Allen
Spring Semester 2002
Introduction
Classes will be held on Mondays 1:30-4:20pm in 590 KMEC. Office Hours are 2:00-
3:30pm on Tuesdays and by appointment.
Contact details for Franklin Allen: I can be reached at any time through e-mail:
allenf@wharton.upenn.edu Most weeks I will be in my office 9-06 Tisch Hall from
Mondays through Thursdays. My telephone number in the office is 212 998 0336.
Grading will be done on the basis of a presentation and a paper.
Outline of Classes
January 28 Section 1 Introduction
February 4 Section 2 Historical and Recent Crises
February 11 Section 3 Banking Crises
February 25 “ “
March 4 Section 4 Currency Crises
March 18 “ “
March 25 Section 5 Bubbles and Crises
April 1 “ “
April 8 Section 6 Financial Fragility
April 15 Section 7 Contagion
April 22 Section 8 The Role of Bankruptcy
April 29 Section 9 Government and Crises
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Brief Bibliography
Section 2: Historical and Recent Crises
Bordo, M. (1986). “Financial Crises, Banking Crises, Stock Market Crashes and the
Money Supply: Some International Evidence,” 1870-1933.
Bordo, M. and B. Eichengreen (2000). “Is the Crisis Problem Growing More Severe?”
working paper, Rutgers University.
Kindleberger, C. (1991). A Financial History of Western Europe (second edition), New
York: Oxford University Press.
Wilson, J., R. Sylla and C. Jones (1990). “Financial Market Panics and Volatility in the
Long Run, 1830-1988” in Crashes and Panics edited by E. White, Illinois: Dow-
Jones Irwin, 85-125.
Section 3: Banking Crises
Allen, F. and D. Gale. “Optimal Financial Crises,” Journal of Finance 53, 1245-1284.
Diamond, D. W. and P. Dybvig (1983). “Bank Runs, Deposit Insurance, and Liquidity,”
Journal of Political Economy 91, 401-419.
Gorton, G. (1988). “Banking Panics and Business Cycles,” Oxford Economic Papers 40,
751-781.
Jacklin, C. (1987). “Demand Deposits, Trading Restrictions, and Risk Sharing,” in E.
Prescott and N. Wallace, eds., Contractual Arrangements for Intertemporal
Trade, University of Minnesota Press, Minneapolis, MN.
Kindleberger, C. P. (1978). Manias, Panics, and Crashes: A History of Financial Crises,
New York: Basic Books.
Mitchell, W. C. (1941). Business Cycles and Their Causes, Berkeley: University of
California Press.
Morris, S. and H. Shin (1998). “Unique Equilibrium in a Model of Self-Fulfilling
Currency Attacks,” American Economic Review 88, 587-597.
Section 4: Currency Crises
Allen, F. and D. Gale (2000). “Optimal Currency Crises,” Carnegie-Rochester Series on
Public Policy (December 2000).
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Chang, R. and A. Velasco (1998a). “Financial Fragility and the Exchange Rate Regime,”
working paper, New York University.
Chang, R. and A. Velasco (1998b). “Financial Crises in Emerging Markets: A Canonical
Model,” working paper, New York University.
Chari, V. and P. Kehoe, (1999). \QTR{it}{Asking the Right Questions About the IMF},
Federal Reserve Bank of Minneapolis, 1998 Annual Report, Volume 13, May 1999.
Feldstein, M. (1998). “Refocusing the IMF,” Foreign Affairs 77(March/April), 20-33.
Fischer, S. (1999). “On the Need for an International Lender of Last Resort,” working
paper, International Monetary Fund.
Friedman, M. (1998). “Markets to the Rescue,” The Wall Street Journal, October 13.
Gorton, G. (1988). “Banking Panics and Business Cycles,” Oxford Economic Papers 40,
751-781.
Kaminsky, G. and C. Reinhart (1999). “The Twin Crises: The Causes of Banking and
Balance-of-Payments Problems,” American Economic Review 89, 473-500.
Krugman, P. (1979). “A Model of Balance-of-Payments Crises,” Journal of Money
Credit and Banking 11, 311-325.
Krugman, P. (1998). “The Indispensable IMF,” The New York Times, May 15.
Morris, S. and H. Shin (1998). “Unique Equilibrium in a Model of Self-Fulfilling
Currency Attacks,” American Economic Review 88, 587-597.
Obstfeld, M. (1994). “The Logic of Currency Crises,” Cahiers Economiques et
Monetaires, Bank of France 43, 189-213.
Sachs, J. (1995). “Do We Need an International Lender of Last Resort?'' Lecture
delivered at Princeton University, Princeton, N.J., April 20.
Schwartz, A. (1998). “Time to Terminate the ESF and IMF,” working paper, New York
University.
Section 5: Bubbles and Crises
Allen, F. and D. Gale (1999). “Bubbles, Crises and Policy,” Oxford Review of Economic
Policy, 15, 9-18.
Allen, F. and D. Gale (2000). “Bubbles and Crises,” Economic Journal 110, 236-255.
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Allen, F. and Gorton, G. (1993). “Churning Bubbles,” Review of Economic Studies 60,
813-836.
Higgins, M. and Osler, C. (1997). “Asset Market Hangovers and Economic Growth: The
OECD During 1984-93,” Oxford Review of Economic Policy 13, 110-134.
Holmstrom, B. and Tirole, J. (1997). “Financial Intermediation, Loanable Funds, and the
Real Sector,” Quarterly Journal of Economics, 112, 663-691.
Kaminsky, G. and Reinhart, C. (1996). “Banking and Balance-of-Payments Crises:
Models and Evidence,” Working paper, Board of Governors of the Federal Reserve,
Washington, D.C.
Kaminsky, G. and C. Reinhart (1999). “The Twin Crises: The Causes of Banking and
Balance-of-Payments Problems,” American Economic Review 89, 473-500.
Kindleberger, C., (1978). Manias, Panics, and Crashes: A History of Financial Crises,
Basic Books, New York, NY.
Section 6: Financial Fragility
Allen, F. and D. Gale (2001). “Financial Fragility”, Wharton Financial Institutions
Center Working Paper 01-37.
Chari, V. and P. Kehoe (2000). “Financial Crises as Herds,” working paper, Federal
Reserve Bank of Minneapolis.
Lagunoff, R. and S. Schreft (1998). “A Model of Financial Fragility,” forthcoming,
Journal of Economic Theory.
Section 7: Contagion
Allen, F. and D. Gale (2000). “Financial Contagion,” Journal of Political Economy 108,
1-33.
Calvo, G. (1999). “Contagion in Emerging Markets: When Wall Street is a Carrier,”
Unpublished manuscript, University of Maryland.
Freixas, X. and B. Parigi (1998). “Contagion and Efficiency in Gross and Net Interbank
Payment Systems,” Journal of Financial Intermediation 7, 3-31.
Freixas, X. and B. Parigi and J. Rochet (2000). “Systemic Risk, Interbank Relations and
Liquidity Provision by the Central Bank,” Journal of Money, Credit and Banking 32,
611-38.
King, M. and S. Wadhwani (1990). “Transmission of Volatility Between Stock Markets,”
Review of Financial Studies 3, 5-33.
Kiyotaki, N. and J. Moore (1998). “Credit Chains,” working paper, London School of
Economics, Department of Economics.
Kodres L. and M. Pritsker (2000), “A Rational Expectations Model of Financial
Contagion,” working paper, International Monetary Fund.
Krugman, P. (1998), “Bubble, Boom, Crash: Theoretical Notes on Asia's Crisis,”
working paper, MIT, Cambridge, Massachussetts.
Kyle, A. and W. Xiong (1999). “Contagion as a Wealth Effect of Financial
Intermediaries,” working paper, Duke University, Durham, N.C.
McKinnon, R. and Pill, H. (1997), “Credible Economic Liberalizations and
Overborrowing,” American Economic Review 87, 189-203.
Rochet, J. and J. Tirole (1996a). “Interbank Lending and Systemic Risk,” Journal of
Money, Credit and Banking 28, 733-762.
Rochet, J. and J. Tirole (1996). “Controlling Risk in Payment Systems,” Journal of
Money, Credit and Banking 28, 832-862.
Yuan, K. (2000). “Asymmetric Price Movements and Borrowing Constraints: A Rational
Expectations Equilibrium Model of Crisis, Contagion, and Confusion,” working paper,
Department of Economics, MIT.
Section 8: The Role of Bankruptcy
Allen, F. and R. Herring (2001). “Banking Regulation versus Securities Market
Regulation,” Wharton Financial Institutions Center Working Paper 01-29.
Section 9: Government and Financial Crises
Krugman, P. (1998), “Bubble, Boom, Crash: Theoretical Notes on Asia's Crisis,”
working paper, MIT, Cambridge, Massachussetts.
McKinnon, R. and Pill, H. (1997), “Credible Economic Liberalizations and
Overborrowing,” American Economic Review 87, 189-203.