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. By franklin allen and douglas gale, economica, london school of economics and political science, vol. Bubbles and crises franklin allen and douglas gale in recent. Deciphering the liquidity and credit crunch 20072008. The material denoted with in the list below will be discussed in class. Wharton financial institutions center working paper no. Explanations, types, and implications stijn claessens and m. As such, understanding financial crises requires an understanding of macro. Understanding financial crises clarendon lectures in finance. Econ 5058 w advanced topics in financial economics. Reliable information about the coronavirus covid19 is available from the world health organization current situation, international travel. Among the banking crises models, i introduce two models of bank runs. Understanding financial crises franklin allen, douglas gale. Buy understanding financial crises clarendon lectures in finance by allen, franklin, gale, douglas isbn.
In the aftermath of the recent asian financial crisis, many blamed international institutions, corruption, governments, and flawed macro and microeconomic policies not only for causing the crisis but also unnecessarily lengthening and deepening it. The disadvan tage of treating contagion as a sunspot phenomenon is. Financial crises by franklin allen and douglas gale. For instance, dellariccia, detragiache and rajan 2008 provide evidence that bank. Franklin allen and douglas gale argue that the view that marketbased systems are best is simplistic. These papers provide the framework for understanding how the financial crisis of 20072008 developed and steps to promote a stable banking industry, thereby preventing future economic. Europe points out that financial crises have occurred at roughly 10 year. Franklin allen and douglas gale 2007, understanding financial crises. Financial distress in the banking system appears to be a concern for the economy as a whole.
Advanced microeconomics topics econ 510 financial crisis. Pdf misunderstanding financial crises download full. The paper focuses on the main theoretical and empirical explanations of four types of financial crises currency crises, sudden stops, debt crises, and banking crises and presents a survey. Their combined citations are counted only for the first article. 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.
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. Theory and evidence franklin allen university of pennsylvania. See imf 1998, eichengreen 2002, tirole 2002, allen and gale. Allen hf, gale d, 2017, how should bank liquidity be regulated. Understanding financial crises franklin allen, douglas. Jeancharles rochet 2008, why are there so many banking crises. The course will be based on articles and on the book entitled understanding. Douglas gale received his phd in economics from the university of cambridge and was elected to a junior research fellowship at churchill college, cambridge. Our paper liquidity preference, market participation, and asset price volatility was actually begun by one of us in 1988, although it appeared in 1994. Read allen and gale 07 understanding financial crises ch3. Bubbles are caused by agency relationships in the banking sector. 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. Diamnond dybvig 1983 model and allen gale 1998 model, two models of financial.
They happened in developing and developed countries. Allen and gale have been at the frontier of theoretical thinking about crises for over a decade. Grading policy media disclaimer prerequisites 2 on math. Sorry, we are unable to provide the full text but you may find it at the following locations. Understanding financial crises by franklin allen, douglas. Readings financial crises economics mit opencourseware. An introduction to financial crises by franklin allen. Understanding financial crises franklin allen wharton school university of pennsylvania the wharton global alumni forum ho chi minh city, vietnam may 3031, 2008. Understanding financial crises franklin allen and douglas gale clarendon lectures in finance. We take as our starting point the model presented in allen and gale 1998. Financial contagion franklin allen douglas gale jstor. Qualitatively different causes of endogenous financial shocks.
Financial crises often follow what appear to be bubbles in asset prices. Understanding financial crises, oxford university press, 2007 chapters 35. The other references constitute additional basic literature on each topic. Written by two leading academics, franklin allen, former president of the american finance association, and douglas gale. Particularly after the experience of the great depression in the period prior. The course will be based on articles and on the book entitled understanding financial crises by franklin allen and douglas gale. Our interest in bank runs and financial crises began with optimal. Prior to that crises were endemic in europe as well. In finland an expansionary budget in 1987 resulted in massive credit expansion. Investors use money borrowed from banks to invest in risky assets, which are relatively attractive because. Allen and gale 2004, reprinted here as reading 11 develop a general equilibrium framework for understanding the normative aspects of crises.
Understanding financial crises franklin allen, douglas gale limited. Franklin allen university of pennsylvania and douglas gale. Allens main areas of interest are corporate finance, asset pricing, financial innovation and comparative financial systems. 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. Understanding financial crises franklin allen, douglas gale snippet view 2007. Use the link below to share a fulltext version of this article with your friends and colleagues. Causes, consequences, and policy responses stijn claessens, m. Other central banks also learned to prevent crises and their incidence was signi. Douglas gale received his phd in economics from the. An introduction to financial crises franklin allen. 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. Allen and gale 2007 in their book understanding financial crises document the following. Can financial crises be anticipated or even avoided. In the 19th and early 20th centuries, many financial.