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)

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

_____________________________________________________________________
• "Each student in this course is expected to abide by the Cornell University Code of Academic Integrity. Any work submitted by a student in this course for academic credit will be the student's own work. [Optional: For this course, collaboration is allowed in the following instances: list instances.]"
• "In compliance with the Cornell University policy and equal access laws, I am available to discuss appropriate academic accommodations that may be required for students with disabilities. Requests for academic accommodations are to be made during the first three weeks of the semester, except for unusual circumstances, so arrangements can be made."