Financial Stability and Financial Crises

Bachelor 2023/2024

Type: Elective course (Economics)

Area of studies: Economics

Delivered by: Department of Theoretical Economics

Where: Faculty of Economic Sciences

When: 3 year, 2 module

Mode of studies: offline

Open to: students of one campus

Instructors: Maria Shchepeleva

Language: English

ECTS credits: 3

Contact hours: 32

Full Syllabus

Abstract

The course aims to discuss the main causes of financial crises, mechanisms of financial shocks transmission and issues related to anti-crisis policy. Students will learn how to measure systemic risk in the financial sector and get acquainted with the main approaches for predicting financial crises. Additionally, students will learn the best instruments for diagnosing financial sector stability from central banks' and international institutions' practice.

Learning Objectives

The objective of the course is to extend the knowledge on different types of financial crises, their causes and consequences, approaches to predict crises and optimal policy responses.

Expected Learning Outcomes

Know the functions of the financial sector in economics
Know the types of financial systems
Interpret IMF map of financial development
Explain the tradeoff between financial development and financial stability
Discuss the main trends in the evolution of financial systems across the globe
Know main types of financial crises and their specific causes and consequences
Know the characteristics of credit and stock market booms
Know the instruments to detect booms
Explain the difference between benign and malign booms
Know the main indicators of systemic risk (SRISK, MES, LRMES, CoVAR)
Know how to use public databases to derive information on systemic risk in different countries
Know the main instruments of maccroprudential policy
Explain alternatives to institutional organisation of macroprudential policy, their pros and cons
Discuss recent empirical research on effectiveness of macroprudential policy
Discuss the latest empirical research on the relationship between systemic risk and ESG
Know empirical approaches to predicting banking crises
Explain the role of leverage in banking crises
Explain the role of fire sales in banking crises
Explain the mechanism of currency crises under each generation of models
Forms of unconvential monetary policy. Fiscal policy and unpleasant monetarist arithmetic of Sargent and Wallace (1981). Coordination between monetary, fiscal, micro- and macroprudential policices during the crisis
Know the main econometric and machine learning approaches for predicting financial crises
Know indicators, which possess the strongest forecasting power for financial crises
Know the main elements of DSGE models
Know the main steps of constructing agent-based models
Know the possibilities and limitations of large models for incorporating financial sector

Course Contents

IMF FSAP for diagnostics of financial sector stance
Financial insrability in the framework of DSGE and agent-based models
Forecasting financial crises
Optimal policy during the crisis
Currency crises
Modelling banking crises
Systemic risk and ESG: what are the linkages?
Macroprudential regulation
Systemic risk of the financial sector
Credit and stock market booms
Types of financial crises
The role of the financial sector in economic system

Assessment Elements

Report
In-class report with a presentation on the pre-selected paper devoted to financial crises. The report is prepared in groups (maximum 4 students).
Test
Test 1 consists of 30 questions (both multiple choice and open questions). The test covers the questions, related to the role of the financial sector in the economy, types of financial crises, systemic risk quantification and macroprudential policy.
Test
Test 2 consists of 30 questions (both multiple choice and open questions). The test covers the issues, related to theoretical models of banking and currency crises, methods for predicting crises and IMF diagnostics of financial stability.

Interim Assessment

2023/2024 2nd module
0.3 * Report + 0.35 * Test + 0.35 * Test

Bibliography

Recommended Core Bibliography

Aliber, R. Z., & Kindleberger, C. P. (2015). Manias, Panics, and Crashes : A History of Financial Crises, Seventh Edition (Vol. Seventh edition). New York, NY: Palgrave Macmillan. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1651857
Allen, F. V. (DE-588)136922465, (DE-627)588339121, (DE-576)167952374, aut. (2001). Comparing financial systems Franklin Allen and Douglas Gale.
Ana Fostel, & John Geanakoplos. (2008). Leverage cycles and the anxious economy. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.858D058F
Barwell, R. (2017). Macroeconomic Policy After the Crash : Issues in Microprudential and Macroprudential Policy. Cham: Palgrave Macmillan. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1477712
Baumeister, C., & Benati, L. (2010). Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound. Working Paper Series. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.ecb.ecbwps.20101258
Carmen M. Reinhart, & Kenneth S. Rogoff. (2008). This Time is Different: A Panoramic View of Eight Centuries of Financial Crises. NBER Working Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.nbr.nberwo.13882
Chen, Q., Filardo, A., He, D., & Zhu, F. (2015). Financial Crisis, US Unconventional Monetary Policy and International Spillovers. [N.p.]: INTERNATIONAL MONETARY FUND. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1255567
Eichengreen, B. (2002). Financial Crises and What to Do About Them. Oxford University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.oxp.obooks.9780199257447
Eric Silverman. (2018). Methodological Investigations in Agent-Based Modelling: With Applications for the Social Sciences. Web server without geographic relation, Web server without geographic relation (org): Springer. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.36B944A9
Financial crises : theory, history, and policy, , 2008
Financial crises and the politics of macroeconomic adjustments, Walter, S., 2015
Financial crises, , 2008
Financial crises, 1929 to the present, Hsu, S., 2017
Financial Stability and Sustainability under the Coordination of Monetary Policy and Macroprudential Policy: New Evidence from China. (2019). Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.A5A11A7F
Fixing financial crises in the twenty-first century, , 2012
Forero-Laverde, G. (2018). The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013). Universitat de Barcelona, 2018. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edstdx&AN=edstdx.10803.663993
Geithner, T. F. (2014). Stress Test : Reflections on Financial Crises (Vol. First edition). New York: Crown. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=750248
Henry, J., & Kok, C. (2013). A macro stress testing framework for assessing systemic risks in the banking sector. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.8EE2F2A9
International Monetary Fund. Monetary, & Capital Markets Department. (2019). Global Financial Stability Report, October 2019. [N.p.]: INTERNATIONAL MONETARY FUND. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2274328
Jeffrey A. Frankel, & George Saravelos. (2010). Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis. NBER Working Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.nbr.nberwo.16047
Michael J. Barclay, & Clifford W. Smith. (1996). On Financial Architecture: Leverage, Maturity, And Priority. Journal of Applied Corporate Finance, 4, 4. https://doi.org/10.1111/j.1745-6622.1996.tb00679.x
Misunderstanding financial crises : why we don't see them coming, Gorton, G. B., 2012
Mitchell, K., & Pearce, D. K. (2020). How Did Unconventional Monetary Policy Affect Economic Forecasts? Contemporary Economic Policy, 38(1), 206–220. https://doi.org/10.1111/coep.12440
Moritz Schularick, Freie Universität Berlin, & Alan M. Taylor. (2009). Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008. CEPR Discussion Paper No 7570. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.2A1EB725
Paul Krugman. (1996). Are Currency Crises Self-Fulfilling? NBER Chapters, 345. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.h.nbr.nberch.11032
Uri Wilensky, & William Rand. (2015). An Introduction to Agent-Based Modeling : Modeling Natural, Social, and Engineered Complex Systems with NetLogo. The MIT Press.
Полбин, А. С. Построение и калибровка DSGE-модели для российской экономики с использованием импульсных откликов векторной авторегрессии : сборник научных трудов / А. С. Полбин. — Москва : Институт Гайдара, 2023. — 56 с. — ISBN 978-5-93255-659-7. — Текст : электронный // Лань : электронно-библиотечная система. — URL: https://e.lanbook.com/book/338192 (дата обращения: 00.00.0000). — Режим доступа: для авториз. пользователей.

Recommended Additional Bibliography

A history of financial crises : dreams and follies of expectations, Bilginsoy, C., 2015
Financial crises in emerging markets, , 2010
Modern financial crises : Argentina, United States and Europe, Moro, B., 2016

Authors

SCHEPELEVA MARIYA ALEKSANDROVNA

Course Syllabus