Bundesbank Course

Topics on “Financial Market Imperfections and Macroeconomics”
October/November 2012

Prof. Dr. Anton Korinek
Tydings Hall 4118F
University of Maryland
Email contact: anton@korinek.com
Webpage: http://www.korinek.com

Course Description:

The objective of this course is to cover cutting-edge concepts in the area of financial market imperfections and macroeconomics, with special focus on macroprudential regulation and its application using empirical and quantitative tools.  The course will start with a synopsis of theories of systemic risk and excessive risk-taking in the financial sector, including theories of pecuniary externalities, moral hazard, and exuberance.  It will then cover empirical research on the measurement of systemic risk and externalities in the financial sector in order to build the basis for calibrating optimal policy measures and macroeconomic models.  The course will also cover some recent research on sovereign default and on financial innovation.

Schedule:

Mon 10/29

2:45 - 5pm

Introduction and Foundations of Systemic Risk

Tue 10/30

10 - 12:15pm

Modeling and Quantification of Systemic Risk

Wed 10/31

9 - 10am

Macroprudential Regulation Versus Ex-Post Policy Measures


2:30 – 4:45pm

Computer Lab (optional)

Thu 11/1

10 - 12:15pm

Financial Innovation and Regulation

 

2 - 4:15pm

Computer Lab (optional)

Fri 11/2

10 - 12:15pm

Sovereign Risk

Requirements:

The course will consist of five lectures and two optional computer lab sessions for participants who want to gain hands-on experience. For those who want to participate in the lab sessions, a working knowledge of Matlab is recommended.

Readings:

The following reading list provides a guide to the materials that will be covered in class. Participants are encouraged to study the papers marked by (*) before the beginning of the course so as to facilitate our progress in the course. The paper marked by (#) will be the basis for most of our numerical exercises and simulations.

Systemic Risk and Macroprudential Regulation

Adrian, Tobias and Markus Brunnermeier (2011), “CoVaR,” NBER Working Paper # 17454.

Alessandri, Pierpaolo and Andrew Haldane (2009), Banking on the State, Bank of England.

Greenwood, Robin, Augustin Landier and David Thesmar (2011), “Vulnerable Banks,” IDEI Working Paper.

(*) Jeanne, Olivier and Anton Korinek (2010), “Excessive Volatility in Capital Flows,” American Economic Review 100(2), pp. 403-407.

(*)(#) Jeanne, Olivier and Anton Korinek (2010), “Managing Credit Booms and Busts: A Pigouvian Taxation Approach,” NBER Working Paper #16377.
Sample Matlab code: http://www.korinek.com/download/boombust.m

(*) Jeanne, Olivier and Anton Korinek (2012), “Macroprudential Regulation Versus Mopping Up After the Crash,” NBER Working Paper.

Korinek, Anton (2011a), “Hot Money and Serial Financial Crises,” IMF Economic Review 59(2), pp. 306-339.

Korinek, Anton (2011b), “The New Economics of Prudential Capital Controls,” IMF Economic Review 59(3), pp. 523-561.

Korinek, Anton (2011c), “Systemic Risk-Taking: Amplification Effects, Externalities, and Regulatory Responses,” ECB Working Paper #1345.

Martinez-Miera, David and Javier Suarez (2012), “A Macroeconomic Model of Endogenous Systemic Risk Taking,” CEPR Working Paper.

Financial Innovation and Regulation

Akerlof, George A. and Paul M. Romer (1993), “Looting: The Economic Underworld of Bankruptcy for Profit,” Brookings Papers on Economic Activity 1993(2), pp. 1-73.

(*) Allen, Franklin and Douglas Gale (1989), “Optimal Security Design,” Review of Financial Studies 1(3), pp. 229-263.

Korinek, Anton (2012), “Financial Innovation for Rent Extraction: Bailouts and Optimal Security Design,” mimeo.

Pozsar, Zoltan, Tobias Adrian, Adam Ashcraft and Hayley Boesky (2010), “Shadow Banking,” Federal Reserve Bank of New York Staff Report no. 458.

Simsek, Alp (2011), “Speculation and Risk Sharing with New Financial Assets,” NBER Working Paper #17506.

Sovereign Risk

Bolton, Patrick and Jeanne Olivier (2011), “Sovereign Default Risk and Bank Fragility in Financially Integrated Economies”, IMF Economic Review 59, pp. 162-194.

(*) Calvo, Guillermo A. (1988), “Servicing the Public Debt: The Role of Expectations,” American Economic Review 78(4), pp. 647-661.

Cole, Harold L. and Timothy J. Kehoe (2000), Self-Fulfilling Sovereign Debt Crises, Review of Economic Studies 67(1), pp. 91-116.

Jeanne, Olivier (2012), “Fiscal Challenges to Monetary Dominance in the Euro Area: A Theoretical Perspective", Banque de France Financial Stability Review.

Roch, Francisco and Harald Uhlig (2012), The Dynamics of Sovereign Debt Crises and Bailouts, mimeo.

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boombust.m
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Oct 31, 2012, 3:47 PM
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