Your task: After viewing the lecture and reading the materials for Module 2 on crises, post a response to one of the following questions. Then, respond to at least two of your classmates.
Larry Summers once compared financial development to traveling by airplane rather than a boat. Is this a good way to describe the benefits and risks of financial development in light of Rajan’s article and the Financial Crisis?
Some real business cycle theorists have argued that crises happen because productivity growth slows down, not because of excessive leverage or risk-taking. Do you agree? Are you convinced that financial development often promotes economic development? What issues remain unclear?
The economy has contracted dramatically during the COVID-19 response this spring and summer. Looking at the behavior of aggregate supply, aggregate demand, and the quantity and quality of financial services, how is this crisis similar to or different from previous crises such as the Great Recession of 2007-9 or the Great Depression of the 1930s? In what ways is the financial system vulnerable to damage in the current crisis? Do you have any recommendations about measures to protect the financial system in the coming months and years?
Once you have drafted your response, carefully vet it according to the APA Writing Guidelines for this course. The citations can be in abbreviated form “Levine and Zervos 1998 p. 8. After your review, post your response to the discussion board. Then, comment on the posts of at least two classmates.
REQUIRED READINGS
Dell’Ariccia et al 2016 Credit booms and macrofinancial stability
Dell-Ariccia et al 2007 Credit booms and lending standards–evidence from the subprime market
Keys et al 2010 620 FICO take 2 securitization and screening in the mortgage market
Rajan 2005 Has financial development made the world riskier
RECOMMENDED READINGS
Adrian and Shin 2010 Liquidity and Leverage
Bernanke and Gertler 1993 Agency costs net worth and business fluctuations
Borio 2002 Assessing the risk of banking crises
Laeven and Valencia 2012 Systemic banking crises–an update
Salido-Lopez et al 2015 Credit-Market-Sentiment-and-the-Business-Cycle-3-25
Sheiner, L.