ELE 3732 Financial bubbles, crashes and crises
According to an estimate from the International Monetary Fund (IMF), between 1970 and 2011 alone the world experienced no less 147 systemic banking crises, 218 currency crises and 66 sovereign debt crises (Valencia & Laeven, 2012). Such financial crises often have devastating effects on the operation of the general economy: they cause decline in investment spending, reductions in business profits, and an increase the number of bankruptcies. They also increase unemployment levels and reduce overall household income. According to figures from The US Bureau of Labor Statistics, unemployment rates in USA more than doubled in the years immediately following the financial crisis of 2008. This crisis – often termed The Great Recession or The Subprime Crisis – spread globally and caused, according to one estimate, an increase in global unemployment of about 50 million and an increase in the number of people living in extreme poverty of about 200 million (Stiglitz, 2010, p. 346).
What are the fundamental characteristics of financial crisis and why do they appear so frequently? How does the macroeconomic climate affect the occurrence of financial crisis? Are financial crises more frequent today than before? How have existing crises been solved historically and what can be done to prevent them in the future? These are some of the questions we ask, discuss and try to answer in this course. As the student’s will experience, there exist many different and often competing theories about the causes and effects of financial crisis and how to deal with them. This course provides an overview of these approaches. In addition, it introduces the students to a number of historical case studies of financial bubbles, crashes and crises, starting with three classical bubbles from the seventeenth and eighteenth century (the Tulip mania, the Mississippi bubble and the South Sea bubble) and ending with the Euro crisis (2010-). The idea is that by investigating past experiences with financial crisis we can recognize patterns in how the crises evolved and also evaluate how they were handled. Such historical knowledge may in turn help shed light on how to deal with and assessing future risks of crisis in the economy and how to deal with such crisis.
During the course students shall acquire:
- Knowledge about fundamental concepts (such as money and debt), about financial institutions (such as banks and regulatory authorities) and about the larger macroeconomic environment in which the financial sector is situated.
- A broad base of theoretical and empirical knowledge about financial stability and financial crises in a historical perspective.
- In-debt knowledge about historical cases of financial crisis.
After completed course students should be able to:
- Distinguish between different theories on the causes and effects of financial bubbles, crashes and crises, and to apply this knowledge for analytical purposes.
- Critically and systematically discuss divergent theories on financial crisis and to present their analysis in writing.
- Analyze present-day problems in a historical perspective.
After completed course students should be able to:
- Reflect on the value of historical knowledge for the understanding of present day problems.
- Reflect on how theories of social phenomena – such as financial crises – are constructed, contested and developed, including how differences in methodological approach may affect our understanding of social processes.
- Reflect on the various ethical dilemmas connected to the development of financial crises and the different ways of solving them.
The course will be divided in a theoretical and a more empirical, or historical, part.
The theoretical part will;
- Present a number of basic concepts and issues necessary to understand the development of financial crisis.
- Describe the most important institutions within the financial sector and how international finance has developed over time.
- Discuss a number of existing theories of financial crises including the so-called Minsky-Kindleberger model and the Monetarist school on crisis development.
The empirical, or historical, part will present a number of historical case studies of financial crises, including;
- The Tulip mania (1636-37), the Mississippi bubble (1716-21) and the South Sea bubble (1711-1721),
- The Wall Street crash, the Great Depression and the crises of the 1930s,
- The Nordic banking crisis of the 1990s,
- The Asian crisis (1997/98),
- The Subprime crisis (2008) and
- The Euro crisis (2010-).
The course consists of lectures, group work, discussions and presentations.
For electives re-sit is normally offered at the next scheduled course. If an elective is discontinued or is not initiated in the semester it is offered, re-sit will be offered in the electives ordinary semester.
Higher Education Entrance Qualification.
No specific prerequisites required.
|Exam category||Weight||Invigilation||Duration||Support materials||Grouping||Comment exam|
Form of assessment:
Internal and external examiner
Examination when next scheduled course
|Form of assessment:||Written submission|
|Support materials:|| |
|Resit:||Examination when next scheduled course|
|Workload activity||Duration||Type of duration||Comment student effort|
|Review of assignments in plenary||8||Hour(s)|
|Group work / Assignments||25||Hour(s)||Casework and assignments|
|Prepare for teaching||6||Hour(s)||Preparation for presentations|
|Workload activity:||Review of assignments in plenary|
|Workload activity:||Group work / Assignments|
|Comment:||Casework and assignments|
|Workload activity:||Prepare for teaching|
|Comment:||Preparation for presentations|
|Workload activity:||Self study|
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.
|Mishkin, Frederic S.||2016||The economics of money, banking, and financial markets||11th ed., Global ed||Pearson|
|Aliber, Robert Z.; Kindleberger, Charles P.||2015||Manias, panics and crashes: a history of financial crises||7th ed||Palgrave Macmillan|
|Klovland, J.T.||Bank Crises and resumption of Prewar Gold Parity, 1920-1928||Bank Crises and resumption of Prewar Gold Parity, 1920-1928|
|Moseley, F.||Marx, Minsky and Crotty on crises in capitalism||Marx, Minsky and Crotty on crises in capitalism|
|Knutsen, Sverre||1991-09||From expansion to panic and crash|
|Lönnborg, Mikael; Ögren, Anders; Rafferty, Michael||2011-04||Banks and Swedish financial crises in the 1920s and 1930s|
|Hansen, Per H.||1991-09||From growth to crisis|
|2012||Why do banking crises occur? The American subprime crisis compared with the Norwegian banking crisis 1987-92||Norges Bank|
|Jonung, Lars; Vartia, Pentti; Kiander, Jaakko||cop. 2009||The Great financial crisis in Finland and Sweden: the Nordic experience of financial liberalization||Edward Elgar||241 pages|
|Reinhart, Carmen M.; Rogoff, Kenneth||cop. 2009||This time is different: eight centuries of financial folly||Princeton University Press||Page 1-292|
|Sjögren, Hans; Knutsen, Sverre||Why do banking crises occur? : an evolutionary model of Swedish banking crises||Why do banking crises occur? : an evolutionary model of Swedish banking crises||P. 183-203|