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(Click here for printable PDF Version)
NBA 595, CRP 639.09; Credit: 3
(not open for audit)
Spring 2008
Prof. I. Azis (ija1@cornell.edu)
TA:
Mingkwan Thongpruksa (mt295@cornell.edu)
Economics of Financial Crises
Thurs 11.55-14.40;
Room: Sage B06
Office Hour: Tues: 11.00 – 14.00, and by appointment
Office: 213 West Sibley Hall (255-4271)
Purpose of the Course
More globalized world implies a more
unstable and volatile financial sector, making the probability of
financial crisis higher. Such a crisis occurs in developing and
developed countries alike, e.g., from Latin America, Europe, Asia, to
North America. The episode of financial crisis was particularly frequent
during the 1990s, the period in which globalization and financial
liberalization were intensified. The causes of the crisis vary, but the
business sector’s behavior and financial decisions in response to the
new environment play an important role. The repercussions of the crisis
on the business sector are also significant. They determine the speed
and characteristics of the recovery process.
Understanding the causes, nature, and consequences of financial crises
is of interest to financial analysts, business community, public and
private sector, and economists alike. The purpose of this course is to
help students with such understanding, and to familiarize them with the
relevant tools for analyzing the phenomena of financial crises. While
crisis is often multidimensional, the focus of the course is on the
economics of it.
Contents
The course covers two broad subject matters:
A) Nature of financial crises. This will be approached by (1)
explaining the empirical episodes of crises in various emerging market
economies, and (2) elucidating the relevant theoretical concepts in each
of those cases. We will cover the key elements of financial instability
such as: sudden increase in interest rate, deteriorating banks’ balance
sheet, stock market declines and other forms of uncertainty. The
characteristics of these events can be better understood through the
occurrence of "asymmetric information" resulting in adverse selection,
moral hazard, and free rider phenomena. Generally speaking, the genesis
of a financial crisis can be classified into:
-
Balance of payment crisis driven by
weaknesses in traditional fundamentals such as overvaluation of real
exchange rates that caused current account deficits (CAD) to soar;
-
Weak macroeconomic fundamentals,
featured by widening government deficits and CAD. When such deficits
are monetized, money supply increases, putting strong pressures on
the exchange rate to depreciate (or to collapse). The relevant
models in this domain include the standard “two-gap” and “first
generation” models;
-
Inconsistency between macroeconomic
policy (e.g., fast expansion of credit and government expenditures)
and a fixed exchange rate regime. This may cause a speculative
attack on domestic currency and a self-fulfilling expectation (of
the attack) leading to a run on international reserves similar to a
bank run, even when the traditional macroeconomic fundamentals
remains strong. This is a type of a crisis discussed in the ”second
generation” model;
-
Double mismatches that go beyond
standard macroeconomic fundamentals. This is featured among others
by over-lending for long-term and risky projects through implicit
government guarantees (moral hazard and weak banking system),
short-term credits that go to certain politically well-connected
groups, and uncontrolled and unhedged foreign debt made by either
banks or corporate sector. Such an environment may lead to an
extensive crisis rather than just a bank crisis, and the damaged
balance sheet could be widespread. This makes the propagation of
financial instability in emerging markets distinguishable from that
in industrial countries.
B) Consequences of financial crises and
policy response. The intricate mechanisms of the link between
financial instability and economy-wide aspects are to be discussed by
using examples from actual crisis episodes around the world. Discussions
on policy responses include financial and monetary policies and the
unsettled relationship between interest rates and exchange rates, and
how the business sector can influence and be influenced by the policies.
Among possible interesting debates on financial/monetary policies is
whether an overly tight monetary policy and budget austerity are
necessary, and whether raising interest rates is the proper policy
response across the board. Debates on these issues subsequently leads to
the discussions on the types and roles of international financial
institutions (such as the IMF) and their standard policies for crisis
management. Among several alternative strategies, some countries have
moved towards forming a regional financial arrangement to lessen their
dependence on the international financial institutions and to give them
opportunities to design more relevant policies.
Requirements
Having some background in macro, micro and financial economics would be
useful. Prior knowledge of some basic quantitative models is also
helpful, albeit not strictly required.
Evaluation
Evaluation will be based on three components: (1) students’
participation in class debates and discussions: 30%; (2) homework: 20%;
and (3) final project: 50%. The paper for the final project should not
be longer than 10 pages, double-space, including tables and figures. It
should contain:
1. One or two paragraphs about the issues and questions being raised,
and what methods and data are used in the analysis
2. The structure of the model (specifications, assumptions, etc)
3. Discussions on the results of model simulations
The paper is to be submitted a week before class presentation (TBA). It
is strongly advised that students make their plans early for the project
topic, so that they can raise issues and questions related to the topic
early in the semester. The use of quantitative model and extensive data
(of economic and financial variables) carries extra weight.
Schedule and Reading Materials
The following are the week-by-week topics to be discussed in class. The
related reading materials are not exhaustive; they are listed primarily
for those who would seek clarifications or further explanations on the
respective subject(s).
Week 1:
• Episodes of financial crises: Latin America, Europe, Asia, Russia, US
• High frequency of financial crisis during the 1990s
• Subprime crisis
• The next crisis?
Reading Materials
1. Pastor, Manuel (1989), Capital Flight and the Latin American Debt
Crisis, Economic Policy Institute, Washington DC.
2. Eichengreen, Barry (2000). The EMS Crisis in Retrospect, NBER Working
Paper No 8035, December, (http://www.nber.org/papers/w8035).
3. Drazen, Allan (1999), Political
Contagion in Currency Crises, NBER Working Paper Series No 7211,
Cambridge, MA
(http://www.nber.org/papers/w7211)
or
http://www.tau.ac.il/~drazen/ciewp39.pdf
4. Sachs, Jeffrey (2000), Brazil Fever: First, Do No Harm, background
paper for NBER meeting, Currency Crisis, Session on Brazil, April 15, (http://www.nber.org/~confer/2000/brazil00/sachs.pdf)
5. Stiglitz, Joseph (1999). “Must
Financial Crises be this Frequent,” Policy Options, July-August
6. Azis, Iwan J (1999), Do We Know The Real Causes of the Asian Crisis?
in Barry Herman (ed), Global Financial Turmoil and Reform, United
Nations University Press.
7. OECD Policy Brief (2002). “Economic survey of Turkey, 2002” OECD
Observer, Organisation for Economic Co-operation and Development, Paris,
October (http://www.oecd.org/dataoecd/52/1/2763824.pdf)
8. Mario I. Blejer, Alejandro Henke, and
Eduardo Levy-Yeyati (2002) The Argentine Crisis: Issues for Discussion.
Unpublished manuscript (http://www.nber.org/~confer/2002/argentina02/blejer.pdf)
9. Adams. W., Liran Einav, Jonathan Levin
(2007). “Liquidity Constraints and Imperfect Information in Subprime
Lending,” NBER Working Paper No. 13067, Cambridge, MA
10. Dood, Randall (2007). Subprime: Tentacles of a Crisis, in Finance
and Development, December, Vol 44, No 4; (http://www.imf.org/external/pubs/ft/fandd/2007/12/dodd.htm)
Week 2:
• Symptoms of financial crises: “inevitable” increase in interest rate,
deteriorating banks’ balance sheet, a sharp drop in the stock market and
output, and the emergence of other uncertainties
• Four types of crises: current account, balance sheet, bank-run,
contagion and irrational speculation
Reading Materials
1. Bordo, Michael D (2006). Sudden Stops, Financial Crises and Original
Sin in Emerging Countries: Déjà vu?, NBER Working Paper No 12393, July;
(http://www.nber.org/papers/w12393)
2. Feldstein, Martin (1999),
Self-Protection for Emerging Market Economies, NBER Working Paper
Series, No 6907, January. (http://papers.nber.org/papers/W6907)
3. Yoshitomi, M; Iwan J. Azis; Willem
Thorbecke, et.al (2003), A Post-Crisis Development Paradigm for Asia,
ADB-Institute, Tokyo.
4. Cerra, Valerie Cerra; Sweta Chaman Saxena (2005), “Growth Dynamics:
The Myth of Economic Recovery,” IMF Working Paper, WP/05/147, July
(http://www.imf.org/external/pubs/ft/wp/2005/wp05147.pdf)
5. Obstfeld, M (1994), The Logic of
Currency Crises, NBER Working Paper Series, No 4640, Cambridge MA (http://papers.nber.org/papers/W5789)
Week 3:
• Causes of financial crises or factors affecting vulnerability?
• Deteriorating macroeconomic fundamentals
Reading Materials
1. Azis, Iwan J (1997), Currency Crisis in Southeast Asia: The Bubble
Finally Bursts, The Economic Outlook For 1998, RSQE, University of
Michigan
2. Sachs, J.D., Tornell, A., Velasco, A. (1996), Financial Crises in
Emerging Markets: The Lessons From 1995, Brookings Papers on Economic
Activity, No 1( www.nber.org/papers/w5576)
3. Azis, Iwan J (forthcoming, 2008). ”From
Subprime Crisis to a Possible Recession,” to appear in Current Topics in
Management, Vol 13, July.
Week 4:
• Massive inflows of capital: are they the cause or merely the symptom
of financial crisis?
• Impacts of capital inflows and the policy options
Reading Materials
1. Edwards, Sebastian (1998), Capital Flows Into Latin America: A
Stop-Go Story? NBER Working Paper Series No 6441, Cambridge, MA (http://papers.nber.org/papers/W6441)
2. Bekaert, G., Harvey, C.R., Lumsdaine,
R.L. (1999), The Dynamics of Emerging Market Equity Flows, NBER Working
Paper Series No 7219, Cambridge MA (http://papers.nber.org/papers/W7219)
3. Lopez-Mejia, A (1999), Large Capital
Flows: A Survey of the Causes, Consequences, and Policy Responses, IMF
Working Paper, WP/99/17 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880544)
4. Calvo, Guillermo, A., Leiderman, L.,
Reinhart, C.M (1992), Capital Inflows and Real Exchange Rate
Appreciation in Latin America: The Role of External Factors, IMF Working
Paper, WP/92/62 (http://www.imf.org) or (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=884895)
5. Ito, Takatoshi (1999), Capital Flows in
Asia, NBER Working Paper Series No 7134, Cambridge, MA (http://papers.nber.org/papers/W7134
6. Wei, Shang Jin., and Yi Wu (2001).
Negative Alchemy: Corruption, Composition of Capital Flows and Currency
Crises, NBER Working Paper No. 8187, March, Cambridge Massachussetts. (http://www.nber.org/papers/W8187)
7. Hernandez, Leonardo, Pamela Mellando.,
Rodrigo Valdez Determinants of Private Capital Flows in the 1970s and
1990s: Is There Evidence of Contagion (2001). IMF Working Paper, No.
WP/01/64, Washington D.C
(http://www1.worldbank.org/economicpolicy/managing%20volatility/contagion/documents/wp0164.pdf)
Week 5:
• Financial Liberalization and weak banking system
• Sequencing of liberalization
Reading Materials
1. Stiglitz, Joseph E., Bruce C. Greenwald (2003). Towards a New
Paradigm in Monetary Economics, Cambridge University Press
2. Bekaert, Geert., Campbell R. Harvey, and Christian Lundblad (2001),
Does Financial Liberalization Spur Growth?, NBER Working Paper, No.
8245, Cambridge, Massachusetts. (http://www.nber.org/papers/W8245)
3. Azis, Iwan J (1999), Exchange Rate,
Capital Flows and Reform Sequencing in Indonesia: Policy Trend and CGE
Model Application, in Julio de Brun and Rolf Luders (eds), Macroeconomic
Policy and the Exchange Rate, International Center for Economic Growth,
San Fransisco, CA
4. Klein M & Olivei, G (1999), Capital Account Liberalization, Financial
Depth, and Economic Growth, NBER Working paper Series No 7384,
Cambridge, MA (http://papers.nber.org/papers/W7384)
5. Chang, R & Velasco, A (1998), Financial
Fragility and the Exchange Rate Regime, NBER Working Paper Series No
6469, Cambridge MA (http://papers.nber.org/papers/W6469)
6. Burnside, C., Eichenbaum, M., Rebelo, S
(1998), Prospective Deficits and the Asian Currency Crisis, NBER Working
Paper Series No 6758, Cambridge, MA (http://papers.nber.org/papers/W6758)
7. Eichengreen, B, Mussa, M, Dell’Ariccia,
G, Detragiache, E, Milesi-Ferretti, G.M, and Tweedie, A (1999),
Liberalizing Capital Movements: Some Analytical Issues, IMF Economic
Issues, No 17
(http://www.imf.org/external/pubs/ft/issues/issues17/index.htm
)
8. Johnston, R.B (1998), Sequencing
Capital Account Liberalization and Financial Sector Reform, IMF Paper on
Policy Analysis and Assessment, PPAA/98/8 (http://www.imf.org/external/pubs/ft/ppaa/ppaa9808.pdf)
9. Johnston, Barry, R., Salim M. Darbar,
and Claudia Echeverria (1997). Sequencing Capital Account Liberalization
- Lessons from the Experiences in Chile, Indonesia, Korea, and Thailand,
IMF Working Paper WP/97/157, Washington D.C. (http://www.imf.org/external/pubs/ft/wp/wp97157.pdf)
10. Kaminsky, Graciela L. and Carmen M.
Reinhart (1999), “The Twin Crises: The Causes of Banking and Balance of
Payments Problems”, American Economic Review, 89/3, 473-500. (http://200.32.4.58/~ely/Kaminski-Reinhart.pdf)
11. Currie, Carolyn (2006). “A new theory
of financial regulation: Predicting,
measuring and preventing financial crises,” The Journal of
Socio-Economics 35, p48–71 (
http://www.sciencedirect.com/science/article/B6W5H-4J2M4FX-1/2/37257696379f9e2beb27398419b622de)
12. Kose, M. Ayhan; Eswar Prasad; Kenneth
Rogoff; Shang-Jin Wei (2006). Financial Globalization: A Reappraisal,
NBER Working Paper, No 12484, August; (http://www.nber.org/papers/w12484)
13. Ranciere, Romain; Aaron Tornell; Frank
Westermann (2006) “Decomposing the Effects of Financial Liberalization:
Crises Vs. Growth”, NBER Working Paper, No 12806; (http://www.nber.org/papers/w12806)
Week 6:
• Contagion
Reading Materials
1. Glick, R & Rose, A.K (1998), Contagion and Trade: Why Are Currency
Crises Regional? NBER Working Paper Series No 6806, Cambridge MA (http://papers.nber.org/papers/W6806)
2. Baig, T & Goldfajn, I (1998), Financial
Market Contagion in the Asian Crisis, IMF Working paper, WP/98/155 (http://www.imf.org/external/pubs/ft/staffp/1999/06-99/pdf/baig.pdf)
3. Forbes, K & Rigobon, R (1999), No
Contagion, Only Interdependence: Measuring Stock Market Co-Movements,
NBER Working Paper Series No 7267, Cambridge, MA (http://papers.nber.org/papers/W7267)
4. Forbes, K & Rigobon, R (2000),
Contagion in Latin America: Definitions, Measurement, and Policy
Implication, NBER Working Paper Series No 7885, Cambridge, MA (http://papers.nber.org/papers/w7885.pdf)
5. Rigobon, R (2000). Contagion: How to
Measure it, NBER Working Paper Series No 8118, Cambridge, MA (http://papers.nber.org/papers/w8118.pdf)
6. Edwards, S. and Raul Susmel (2001).
Volatility Dependence and Contagion in Emerging Equity Markets, NBER
Working Paper Series No 8506, Cambridge, MA (http://papers.nber.org/papers/w8506.pdf)
Week 7:
• Should capital flows be controlled
• Tobin tax
Reading Materials
1. Sebastian Edwards (1998), Interest Rate Volatility, Capital Controls
and Contagion, NBER Working Paper Series No 6756, Cambridge, MA (http://papers.nber.org/papers/W6756)
2. Sebastian Edwards (1998), Capital
Flows, Real Exchange Rates, and Capital Controls: Some Latin American
Experiences, NBER Working Paper Series No 6800, Cambridge, MA (http://papers.nber.org/papers/W6800)
3. Spahn, P.B (1996), The Tobin Tax and
Exchange Rate Stability, Finance and Development, June. (http://www.imf.org/external/pubs/ft/fandd/1996/06/pdf/spahn.pdf)
4. Prasad, Eswar S., and Raghuram G. Rajan,
“Controlled Capital Account Liberalization: A Proposal,” IMF Policy
Discussion Paper, PDP/05/7, October (http://www.imf.org/external/pubs/ft/pdp/2005/pdp07.pdf)
Week 8:
• Speculative attacks: concept and theoretical framework
• Interest-rate parity model
• Currency risk premium
Reading Materials:
1. Flood R.P & Marion, N.P. (1996), Speculative Attacks: Fundamentals
and Self-Fulfilling Prophecies, NBER Working Paper No. 5789, Cambridge
MA (http://papers.nber.org/papers/W5789)
2. Lee, Jang-Yung (1997), Sterilizing
Capital Inflows, IMF Economic Issues No. 7, 1997 (http://www.imf.org/EXTERNAL/PUBS/FT/ISSUES7/issue7.pdf)
3. Flood R.P & Marion, N.P. (1998),
Perspectives on the Recent Currency Crisis Literature, IMF Working Paper
WP/98/130 (http://www.imf.org/external/pubs/ft/wp/wp98130.pdf)
4. Meredith, G. & Chinn, M.D (1998),
Long-Horizon Uncovered Interest Rate Parity, NBER Working Paper Series
No 6797, Cambridge, MA (http://papers.nber.org/papers/W6797)
5. Azis, Iwan J (2002) “What Would Have
Happened in Indonesia if Different Economic Policies had been
Implemented When the Crisis Started?” The Asian Economic Papers, vol. 1
no. 2, MIT Press
6. Azis, Iwan J (2001), “Modeling Crisis Evolution and Counterfactual
Policy Simulations: A Country Case Study,” ADB Institute Working Paper,
No 23, Tokyo. (http://www.adbi.org/files/2001.08.rp23.country.case.indonesia.pdf)
7. Drazen, Allan; Stefan Hubrich (2006).
“A Simple Test of the Effect of Interest Rate Defense,” NBER Working
Paper, No 12616; October; (http://www.nber.org/papers/w12616)
8. Lahiri, Amartya., Carlos A. Vegh
(2005). “Output Costs, Currency Crises, and Interest Rate Defense of A
Peg,” (2005). NBER Working Paper, No 11791, (http://www.nber.org/papers/w11791)
Week 9:
• Asymmetric Information
• Adverse selection, moral hazard, free rider
• Distinct crises in developed and developing countries
Reading Materials
1. Stiglitz, Joseph and Bruce Greenwald (2004), Towards a New
Paradigm in Monetary Economics, Cambridge University Press.
2. Mishkin, Frederic, S (1998), International Capital Movements,
Financial Volatility and Financial Instability, NBER Working Paper, No.
6390, Cambridge, MA (http://papers.nber.org/papers/W6390)
Week 10:
• Determination of exchange rate
• The case of over-shooting
• Fiscal and Monetary Policies
• Tight money policy and exchange rate effects
Reading Materials
1. Robert P. Flood Andrew K. Rose (2001), Uncovered Interest Parity
in Crisis: The Interest Rate Defense in the 1990s, April, (unpublished
paper)
(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880863)
2. Cerra, V & Saxena, S.C (1998),
Contagion, Monsoons, and Domestic Turmoil in Indonesia: A Case Study in
the Asian Currency Crisis (unpublished).
(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=879540)
3. Chinn, Menzie, D (1998), On the Won and
Other East Asian Currencies, NBER Working Paper Series No 6671,
Cambridge, MA (http://papers.nber.org/papers/W6671)
6. Kamin, Steven B. (1997), A
Multi-Country Comparison of the Linkages Between Inflation and Exchange
Rate Competitiveness, BIS Working Papers No. 45, Bank for International
Settlements, Basle, August.
(http://www.bis.org/publ/work45.pdf)
7. Goldfajn, I., Gupta, P (1999), Does
Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis,
IMF Working Paper, WP/99/42
(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=164350#PaperDownload)
8. Goldfajn, I., Baig, T (1998), Monetary
Policy in the Aftermath of Currency Crises: the Case of Asia, IMF
Working Paper, WP/98/170
(https://www.internationalmonetaryfund.com/external/pubs/ft/wp/wp98170.pdf)
9. Drazen, Alan and Stefan Hubrich (2003).
Mixed Signals in Defending The Exchange Rate: What Do the Data Say?
Center for Economic Policy Research, publication No. DP4050, London,
United Kingdom, June.
10. Flood, Robert P. and Andrew K. Rose (2001). Uncovered Interest
Parity in Crisis:The Interest Rate Defense in the 1990s, unpublished
manuscript, April
(http://www.internationalmonetaryfund.com/external/pubs/ft/wp/2001/wp01207.pdf)
11. Campa, Jose Manuel. And Linda S.
Goldberg (2006). “Pass Through of Exchange Rates to Consumption Prices:
What Has Changed and Why?”, NBER Working Paper, No 12547, September, (http://www.nber.org/papers/w12547)
12. Bleaney, M and Manuela Francisco
(2007) Exchange Rate Regimes, Inflation and Growth in Developing
Countries – An Assessment, The B.E. Journal of Macroeconomics, Volume 7,
Issue 1, Article 18, (http://www.bepress.com/cgi/viewcontent.cgi?article=1546&context=bejm)
Week 11:
• Economy-wide impacts of financial crises
• From financial to economic and social crises
Reading Materials
1. Azis, Iwan J (1999), Simulating Economy-wide Models to Capture the
Transition from Financial Crisis to Social Crisis,” The Annals of
Regional Science, Springer-Verlag, Vol 34:1-28
2. EDAP-UNDP (1998), Social Implications of the Asian Financial Crisis,
Joint Policy Studies, No. 9, 1998
3. S. Gupta, C. McDonald, C. Schiller, M. Verhoeven, Bogeti, G. Schwartz
(1998), Mitigating the Social Costs of the Economic Crisis and the
Reform Programs in Asia, IMF Paper on Policy Analysis and Assessment,
Fiscal Affairs Department, May.
(http://www.imf.org/external/pubs/ft/ppaa/ppaa9807.pdf)
4. ILO, (1998), The Social Impact of the
Asian Financial Crisis, Bangkok, April.
5. Lance Taylor (ed) External Liberalization in Asia, Post-Socialist
Europe, and Brazil, Oxford University Press, 2005
6. Azis, Iwan J, Wing Thye Woo, Zhai Fan, and Chanin Manopiniwes (2006).
China's Urban-Rural Disparity Under Alternative Financial and Fiscal
Policies, ICFAI Journal of Applied Economics, May.
Week 12:
• Policy response: IMF orthodoxy
• What is the alternative?
• The role of the World Bank
Reading Materials:
1. Joseph Stiglitz (2002). Globalization and Its Discontents, W.W.
Norton & Company
2. Paul Blustein (2003). The Chastening: Inside the Crisis That Rocked
the Global Financial System and Humbled the Imf, Public Affairs
3. IMF, (1998) The IMF's Response to the Asian Crisis, Factsheet,
September, (http://www.imf.org/External/np/exr/facts/asia.HTM)
4. Sachs, J (1998), The IMF and the Asian
Flu, The American Prospect, pp. 16-21, March-April 1 (http://www.prospect.org/print/V9/37/sachs-j.html)
5. Feldstein, M (1998), Refocusing the
IMF, Foreign Affairs, pp. 20-33, March/April (http://bss.sfsu.edu/jmoss/resources/635_pdf/No_26_Feldstein.pdf)
6. Krugman, Paul (1998), Saving Asia: It's
Time to Get Radical, Fortune, September 7(
http://www.geocities.com/Eureka/Concourse/8751/ft0901z.htm)
7. Krueger, Anne, O (1998), Whither the
World Bank and the IMF, Journal of Economic Literature, Vol XXXVI, No.
4, December.
(http://www.nber.org/papers/w6327.pdf)
8. Azis, Iwan J (2004) “Financial Sector
Liberalization and the Asian Financial Crisis: The IFI Got it Wrong
Twice,” in Lourdes Benaria and Savitri Bisnath (eds). Global Tensions:
Challenges and Opportunities in the World Economy, Routledge, New
York-London.
9. Azis, Iwan J (2005) “IMF Perspectives and Alternative Views on the
Asian Crisis,” in P. Gangopadhyay and M. Chatterji (eds) Economics of
Globalisation, Ashgate, England
10. William Easterly (2006), The White Man's Burden: Why the West's
Efforts to Aid the Rest Have Done So Much Ill and So Little Good ,
Penguin Press
Week 13:
• Alternatives to conventional policies
• Proliferation of regional financial arrangements (RFA)
Reading Materials
1. Canova, Fabio and Morten O. Ravn (1996). “International Consumption
Risk Sharing,” International Economic Review, Vol 37, No 3. August.
2. Eichengreen, Barry (2006). “Global Imbalances and the Asian
Economies: Implications for Regional Cooperation,” ADB Working Paper
Series on Regional Economic Integration, No. 4, August.
(http://aric.adb.org/pdf/workingpaper/Eichengreen%20170806a%20final.pdf)
3. French, K.R., Poterba, J.M., (1991).
“Investor diversification and international equity markets,” American
Economic Review, Papers and Proceedings 81, 222–226.
(http://www.nber.org/papers/w3609.pdf)
4. Kalemli-Ozcan, S., B.E Sorensen and O.
Yosha (2003). “Risk Sharing and Industrial Specialization: Regional and
International Evidence,” The American Economic Review, Vol 93, No 3,
June.
(http://www.econ.tau.ac.il/papers/inmemoriam/Yosha_Sorensen_Kalemni-Ozcan_2003.pdf
)
5. Azis, Iwan J (2005). “A Regional
Cooperation To Support Financial Crisis Management and Prevention: An
Application of A Model With Uncertainty and Feedback Influences,”
International Journal of Organizational Analysis, Vol 13, No 3.
6. Kawai, Masahiro and Shigeru Akiyama (2000). “Implications of the
Currency Crisis for Exchange Rate Arrangements in Emerging East Asia”.
Working Paper, World Bank, Washington D.C.
(http://www.iss.u-tokyo.ac.jp/~kawai/pdffiles/respa/wbdipa2502.pdf)
7. McKinnon, Ronald M. (2000), “After the
Crisis, the East Asian Dollar Standard Revisited,” Mimeograph, Stanford
University
8. Obstfeld, M. (1994). “Risk-taking, global diversification, and
growth.” American Economic Review 84, 1310–1329. (http://www.nber.org/papers/W4093)
9. Prasad, E., K. Rogoff, S. Wei and M.
Kose (2003). “ Effects of Financial Globalization on Developing
Countries: Some Empirical Evidence,” IMF Working Paper, Washington D.C.
(http://www.imf.org/external/np/res/docs/2003/031703.pdf)
10. Mercereau, Benoît (2006) “Financial
Integration in Asia: Estimating the Risk-Sharing Gains for Australia and
Other Nations,” IMF Working Paper, WP/06/267, December, (http://www.imf.org/external/pubs/ft/wp/2006/wp06267.pdf
)
11. Azis, Iwan (2007).”Articulating the
Benefits and Costs of Regional Financial Arrangement in East Asia,” in
Global Imbalances and Their Impacts on Emerging Market Economies,
proceeding jointly published by the IMF-ADB-BI.
Week 14:
• Afterthoughts
• Lessons for policy makers
• Lessons for market players
Reading Materials
1. William Easterly (2001), The Elusive Quest for Growth: Economists'
Adventures and Misadventures in the Tropics, MIT Press
2. Krugman, Paul (1999), Analytical Afterthoughts on the Asian Crisis,
http://web.mit.edu/krugman/www/MINICRIS.htm
3. Azis, Iwan J; Wing Thye Woo; Zhai Fan;
and Chanin Manopiniwes (2006). “China's Urban-Rural Disparity Under
Alternative Financial and Fiscal Policies,” ICFAI Journal of Applied
Economics, May.
4. IMF (2005), Assessing the Determinants and Prospects for the Pace of
Market Access by Countries Emerging from Crises: Further Considerations,
International Capital Markets Department, March
(http://www.imf.org/external/np/pp/eng/2005/030105a.pdf)
5. Azis, Iwan J. (2008) “From Subprime
Crisis to a Possible Recession,” Current Topics in Management, Vol 13
(forthcoming)
6. Hattori, Masazumi and Hyun Song Shin, “The Broad Yen Carry Trade,”
IMES Discussion Paper No. 2007-E-19, Institute for Monetary and Economic
Studies, Bank of Japan, Tokyo
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