Doctoral Course in Financial Crises and Globalization,

Studienzentrum Gerzensee, Switzerland

July 28 August 1, 2003.

Michael D. Bordo

                                                                                                              Rutgers University

Course Description

The problem of financial crises, banking, currency and twin crises has been a major issue in recent decades. It is not a new phenomenon but can be traced back to early modern times. Indeed, the incidence of crises in the recent era of globalization is comparable to that in the previous era from 1880-1914. This course will focus on the issue of financial crises from an historical perspective. First it will survey the history of currency, banking and twin crises across the world for the past century and a half and present empirical evidence on crisis incidence, crisis severity, crisis duration and crisis transmission.

The crisis problem is related to financial globalization and was especially virulent for emerging countries in the pre 1914 era as it is today. The course will also analyze the historical connection between globalization and financial crises in emerging markets in contrast to the experience of the advanced countries. The final objective of the course will be to survey the role of policy in dealing with crises. This will cover the three aspects of crisis policy: crisis prevention, crisis management and crisis resolution. The historical perspective will focus especially on the evolution of the lender of last resort, on international rescues, on bailouts (fiscal resolution), and sovereign debt workouts.

Reading List

Background Readings

Charles P. Kindleberger, Manias, Panics and Crashes: A History of Financial Crises, New York: John Wiley, 1996.

Barry Eichengreen, Financial Crises: and what to do about them. New York: Oxford University Press, 2002.

* Michael D. Bordo, Currency crises (And Banking Crises) in Historical Perspective. Stockholm School of Economic Research Report No. 10 1998.

Jean Tirole, Financial Crises, Liquidity, and the International Monetary System. Princeton: Princeton University Press. 2002.

 

Lecture 1. Background: Theories of Financial Crises

A. Banking Crises
B. Currency Crises
C. Twin Crises
D. Transmission / Contagion
Readings
Jean Tirole, Financial Crises, Liquidity, and the International Monetary System. Princeton: Princeton University Press. 2002. Chapters 1 and 2.

Michael D. Bordo, Currency crises (And Banking Crises) in Historical Perspective, pages 1-21.

with Anna J. Schwartz (1996). "Why Clashes Between Internal and External Goals End in Currency Crisis, 1797-1994," Open Economies Review, Vol. 7, pp. 437- 68. NBER Working Paper No 5710. August 1996.

with Bruce Mizrach and Anna J. Schwartz (1998) "Real Versus Pseudo International Systemic Risk: Some Lessons from History," Review of Pacific Basin Financial Markets and Policies, Vol. 1, No. 1, March, pp. 31-58. NBER Working Paper No.5371. December 1995.

Robert Flood and Nancy Marion, "Perspectives on Recent Currency Crisis Literature," NBER Working Paper No. 6380, January 1998, in International Journal of Economics and Finance, Vol. 4, No. 1, January 1999, pp. 1-26.

Stijn Claessens, Rudiger Dornbusch and Yung-Chul Park. " " Chapter 2 in International Financial Contagion edited by Stijn Claessens and Kristin Forbes. Boston. Kluwer Academic press. 2001. Pp. 19-42.
 
 

Lecture 2. Historical and Empirical Dimensions

A. History of Crises

Charles P. Kindleberger, Manias, Panics and Crashes: A History of Financial Crises, New York: John Wiley, 1996.

Michael D. Bordo, Currency Crises (And Banking Crises) in Historical Perspective. Stockholm School of Economic Research Report No. 10 1998. Pp. 21-34.

 

B. Empirical Dimensions

with Barry Eichengreen, Daniela Klingebiel, and Maria Soledad Martinez-Peria. "Is the Crisis Problem Growing More Severe?" Economic Policy April 2001.

with Barry Eichengreen. "Crises Now and Then: What Lessons from the Last Era of Financial Globalization?" NBER Working Paper No. 8716. January 2002.

with Barry Eichengreen, "Is our Current International Economic Environment Unusually Crises Prone," Capital Flows and the International Monetary System, eds., David Gruen and Luke Gower, Reserve Bank of Australia (1999).
 
 

C. Contagion in Historical Perspective

with Antu Panini Murshid, "Are Financial Crises Becoming More Contagious?" Ch.14 in International Financial Contagion (eds.) Stijn Claessens and Kristin I. Forbes. Kluwer Academic Publishers, Boston pp. 367-403, 2001.

with Antu Panini Murshid, " Globalization and the Changing Patterns in the International Transmission of Shocks in Financial Markets." NBER Working Paper No. 9019. June 2002.

Paolo Mauro, Nathan Sussman and Yishay Yafeh. " Emerging Market Spreads: Then and Now." Quarterly Journal of Economics 117 (2) 2002, pp. 695-733.
 
 

Lecture 3. Globalization and Financial Crises

A. Financial Globalization in Historical Perspective

Michael Bordo. "The Globalization of Financial Markets: What Can History Teach Us?" in Leonardo Auernheimer (ed) International Financial MarketsChicago:
University of Chicago Press 2003.

Maurice Obstfeld and Alan Taylor. " Globalization and Capital Markets." Chapter 3 in Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson (eds.) Globalization in Historical Perspective. Chicago: University of Chicago Press. 2003,pp. 121-183. NBER Working Paper No. 8846.
 
 

B. Globalization and Financial Crises in Emerging Markets

1. Theoretical Background

Guillermo Calvo and Carmen Reinhart. " Fear of Floating." NBER Working Paper No. 7993.

Barry Eichengreen and Ricardo Haussmann. " Exchange Rates and Financial Fragility" In New Challenges for Monetary Policy, Kansas City Federal Reserve Bank of Kansas City. 1999 pp. 329-368.

2. Historical Perspectives

Michael D. Bordo and Marc Flandreau. "Core Periphery, Exchange Rate Regimes and Globalization" in Michael D. Bordo, Alan Taylor, and Jeffrey Williamson (eds.) Globalization in Historical Perspective. Chicago: University of Chicago press. 2003 pp. 417-468. NBER Working Paper No. 8584.

*Michael D. Bordo, Christopher M. Meissner and Angela Redish. "How Original Sin was Overcome: The evolution of external debt denominated in domestic currencies in the United States and the British Dominions 1800-2000." Rutgers University (mimeo) June 2003.

*Marc Flandreau and Nathan Sussman. " Old Sins, Exchange Clauses and European Foreign Lending in the Nineteenth Century." Hebrew University (mimeo) March 2003.

Lecture 4. Policy Perspectives

A. Background

*Michael D. Bordo. " Market Discipline and Financial Crisis Policy: An Historical Perspective." Rutgers University (mimeo) June 2003.

Jean Tirole, Financial Crises, Liquidity, and the International Monetary System. Princeton: Princeton University Press.2002. Chapters 3-7.
 
 

B. Lender of Last Resort and International Lender of Last Resort

Michael D. Bordo. "The Lender of Last Resort: Alternative Views and Historical Experience." Federal Reserve Bank of Richmond Economic Review, March (1990).

Forrest Capie. " Can there Be an International Lender of Last Resort?" International Finance. January 1999.

Stanley Fischer. " On the Need for an International Lender of Last Resort." Journal of Economic Perspectives. 1999 Vol. 13 pp. 85-104.
 
 

C. Rescues versus Bailouts

Michael D. Bordo and Anna J. Schwartz. "Under What Circumstances, Past and Present, Have International Rescues of Countries in Financial Distress Been
Successful?" Journal of International Money and Finance. Vol. 18 No. 4. August 1999, pp. 683-708. NBER Working Paper No. 6824. December 1998.

with Anna J. Schwartz "Measuring Real Economic Effects of Bailouts: Historical Perspectives on How Countries in Financial Distress Have Fared With and
Without Bailouts." Carnegie Rochester Conference Series on Public Policy. December 2000. Vol. 53. Pp81-16. NBER Working Paper No. 7701. May
2001.

D. Sovereign Debt Workouts

Barry Eichengreen, Financial Crises: and what to do about them. New York: Oxford University Press, 2002.

Paolo Mauro and Yishay Yafeh. " The Corporation of Foreign Bondholders." IMF (mimeo). April 2003.