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Understanding Financial Crises PowerPoint Presentation
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Understanding Financial Crises

Understanding Financial Crises

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Understanding Financial Crises

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    1. 1 Understanding Financial Crises Franklin Allen and Douglas Gale Clarendon Lectures in Finance June 9-11, 2003

    2. 2 literature Exchange Rate Dynamics and Currency Crises C.P. Hallwood and R. MacDonald - International Money and Finance Chs 14-17 (HG3881.H2) M. Obstfeld and K. Rogoff - Foundations of International Macroeconomics Ch. 8 (except 8.1 and 8.3) and Ch. 9 (HF1359.O2) P. Krugman - Currencies and Crises, 1995 (HG3881.K7) P. Krugman - Currency Crises, 2000 (HG3881.C8) R. Flood and P. Garber - Collapsing exchange rate regimes: some linear examples, Journal of International Economics 17 (1984), 1-13 M. Obstfeld - Models of currency crises with self-fulfilling features, European Economic Review 40 (August 1996), 1037-47 G. Urwin - Currency boards and currency crises, Oxford Economic Papers 56 (2004), 64-87 G. Kaminsky and C. Reinhart - The twin crises: the causes of banking and balance-of-payments problems, American Economic Review 89 (1999), 473-500 T. Komulainen and J. Lukkarila - What drives financial crises in emerging markets? Emerging Markets Review 4 (2003), 248-72 W.H. Buiter et al. - Interpreting the ERM Crisis: Country-Specific and Systemic Issues (1998) (HG136.P7/84) R.S. Rajan - (Ir)relevance of Currency-Crisis Theory to the Devaluation and Collapse of the Thai Baht (2001) (HG136.P71/88)

    3. 3 Lecture 2 Currency Crises Franklin Allen University of Pennsylvania June 10, 2003 http://finance.wharton.upenn.edu/~allenf/

    4. 4 Introduction Major theme of the banking crises literature Central bank/government intervention is necessary to prevent crises From 1945-1971 banking crises were eliminated but currency crises were not

    5. 5 Many of the currency crises were due to inconsistent government macroeconomic policies Explanations of currency crises are based on government mismanagement Contrasts with banking literature where central banks/government are the solution not the problem

    6. 6 First generation models Krugman (1979) and Flood and Garber (1984) show how a fixed exchange rate plus a government budget deficit leads to a currency crisis Designed to explain currency crises like that in Mexico 1973-82

    7. 7 Salant and Henderson (1978): Model to understand government attempts to peg the price of gold Market Solution: Earn r on gold holdings P(t) = P(0) ert Ln P(t) = Ln P(0) + rt

    8. 8