Draft: 08/06/2012

Professor Karl Shell

Economics 7310: Monetary Economics

Fall 2012

Perequisite: Economics 6410 or the consent of the instructor.

Economics 7310 is an important course for students in macro-economics, monetary economics and international finance. Veterans of 7310 and 7320 are encouraged to enroll. Faculty are encouraged to participate.

Instructor: Karl Shell, karl.shell@cornell.edu, 402 Uris Hall, www.karlshell.com

Assistant: Yukun Liu (shelloffice@cornell.edu), 402 Uris Hall

Office Hours: By appointment through Yukun Liu.

Proposed organization meeting: Tuesday, August 28 at 3:00PM-4:00PM in 420 Uris Hall. Please let us know if this does not work for you.

Meetings: Once weekly for 2 to 3 hours. There will also be a few other meetings. Please let us know your time constraints and time preferences.

Requirements: Students will be expected to attend and participate in all meetings. There will be faculty presentation, and student presentations and/or student papers. Each student will be expected to master (at least) one paper.

Cornell Macro Workshop: 7310 students are urged to participate in Cornell's Macro Workshop, which normally meets on Thursdays, 4:15-5:45pm in 498 Uris Hall.

Cornell/Penn State Macro Workshop: Econ 7310 students are urged to participate in the CU/PSU macro workshop, which meets semi-annually. The fall meeting is at Cornell all day Saturday, October 13 and until late lunch on Sunday, Octor 14. Location: TBA

First Reading List

The group will propose other topics.

(From a Cornell computer, the articles can be read and downloaded through www.karlshell.com)

Background: Taxes Denominated in Money: Ricardian Equivalence or Not; Bonafidelity & Balancedness

K. J. Arrow, "The Role of Securities in the Optimal Allocation of Risk-Bearing," Review of Economic Studies, April 1964, 91-96.

Robert Barro, "Are Government Bonds Net Wealth?" Journal of Political Economy, Vol 82(6), November/December 1974, 1095-1117.

Paul A. Samuelson, "An Exact Consumption-Loan Model of Intererst with or without the Social Contrivance of Money" Journal of Political Economy, December 1958, 467-482.

Karl Shell, "Notes on the Economics of Infinity" Journal of Political Economy, Vol. 79(5), September/October 1971, 1002-1011.

Yves Balasko and Karl Shell, "Lump-Sum Taxation: The Static Economy" in General Equilibrium, Growth, and Trade: The Lagacy of Lionel McKenzie, II (R. Becker, M. Boldrin, R. Jones and W. Thomson, eds.) New York: Academic Press, 1993, 168-180.

Yves Balasko and Karl Shell, "The Overlapping-Generations Model, I: The Case of Pure Exchange without Money" Journal of Economic Theory, Vol. 23(3), December 1980.

Yves Balasko and Karl Shell, "The Overlapping-Generations Model, II: The Case of Pure Exchange with Money" Journal of Economic Theory, Vol. 24(1), February 1981, 112-142. See also "Erratum", Journal of Economic Theory, Vol. 25(3), December 1981, 471.

Karl Shell, "Sunspot Equilibrium" in The New Palgrave: A Dictionary of Economics, Second Edition (L. Blume and S. Durlauf, eds.), Macmillan, 2008.

Dave Cass, "Sunspots and Incomplete Financial Markets: The Leading Example" The Economics of Imperfect Competition and Employment: Joan Robinson and Beyond, G.Feiwei, ed., 1989.

Bank Runs and Financial Fragility

Karl Shell web site on Financial fragility

Diamond, Douglas W., and Dybvig, Philip H., "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy 91 (June 1983): 401-19.

Huberto M. Ennis, and Todd Keister, "Run Equilibria in the Green-Lin Model of Financial Intermediation," Journal of Economic Theory Vol. 144 (2009) 1996-2020.

Green, Edward J., and Lin, Ping, "Diamond and Dybvig's Classic Theroy of Financial Intermediation: What's Missing?" Fed. Reserve Bank Minneapolis Q. Rev. 24 (Winter 2000): 3-13.

Peck, James, and Shell, Karl, "Equilibrium Bank Runs," Journal of Political Economy, Vol. 111, No. 1, February 2003, 103-123.

Peck, James, and Shell, Karl, "Could making banks hold only liquid assets induce bank runs?" Journal of Monetary Economics, (Vol. 7:4, May 2010).

Wallace, Neil, "Another Attempt to Explain an Illiquid Banking System: The Diamond and Dybvig Model with Sequential Service Taken Seriously." Fed. Reserve Bank Minneapolis Q. Rev. 12 (Fall 1988): 3-16.

Wallace, Neil, "A Banking Model in Which Partial Suspension is Best." Fed. Reserve Bank Minneapolis Q. Rev. 14 (Fall 1990): 11-23.

H.M. Ennis, "Economic fundamentals and bank runs," Federal Reserve Bank of Richmond Economic Quarterly 89 (Spring 2003), 55-71.

Huberto M. Ennis, and Todd Keister, "Banking Panics and Policy Responses," Journal of Monetary Economics, Vol. 57, No. 4 (2010) 404-419.

Huberto M. Ennis, and Todd Keister, "Bank Runs and Institutions: The Perils of Intervention," American Economic Review, Vol. 99 (2009) 1588-1607.

Gale, Douglas, and Xavier Vives, "Dollarization, Bailouts, and the Stability of the Banking System," Quarterly Journal of Economics (May) 2002: 467–502.

Edward J. Green, "Bailouts," Federal Reserve Bank of Richmond Economic Quarterly 96:11-32.

Todd Keister, "Bailouts and Financial Fragility," mimeo., June 2012. 

Bianchi, Javier,  "Efficient Bailouts?," mimeo., University of Wisconsin, January 2012.

Cooper, Russell and Hubert Kempf, "Deposit insurance without commitment: Wall Street versus Main Street,", NBER Working Paper No. 16752, 2011.

Nosal, Jaromir and Guillermo Ordoņez, "Uncertainty as Commitment", mimeo., Columbia and Yale Universities, May 2012.

V. Achrua and T. Yorulmazer, "Too Many to Fail: An Analysis of Time Inconsistency in Bank Closure Policies," Journal of Financial Intermediation, 2007.

Mark Gertler and Nobuhiro Kiyotaki, "Banking, Liquidity and Bank Runs in an Infinite Horizon Economy" mimeo., May 2012.

Pengfei Wang and Jianjun Miao, "Banking Bubbles and Financial Crisis," mimeo., January 2012.

Gary B. Gorton and Andrew Metrick, "Getting up to Speed on the Financial Crisis: A one-weekend-reader's guide" Journal of Economic Literature, 2012.

Zhiguo He, and Wei Xiong "Dynamic Debt Runs" NBER Working Paper No. 15482, November 2009.

Bruno Biais, Forian Heider, and Marie Hoerova, "Risk-Sharing or Risk-Taking? Counterparty Risk, Incentives and Margins" ECB Working Paper No. 1413, January, 2012.

Jean Tirole, "Illiquidity and All Its Friends," Journal of Economic Literature, vol. 49, n. 2, 287-325, 2011.

Charles W. Calomiris, "The Subprime Turmoil: What's Old, What's New, and What's Next," Journal of Structured Finance, vol. 15, no. 1, 2009, 6-52.

Andrew Lo, "Reading About The Financial Crisis: A 21-Book Review,"Journal of Economic Literature, 2012.

Markus Brunnermeier, "Deciphering the Liquidity and Credit Crunch 2007–2008," Journal of Economic Perspectives, vol. 23, no. 1, 2009, 77–100.

Markus Brunnermeier and Lasse Pedersen, "Market Liquidity and Funding Liquidity," Review of Financial Studies, 2009.

Allaudeen Hameed, Wenjin Kang and S. Viswanathan, "Stock Market Declines and Liquidity," Journal of Finance, 2010.

Karolyi, Lee and van Dijk, "Understanding Commonality in Liquidity Around the World" forthcoming Journal of Financial Economics, 2012.

Jean Tirole, "Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning," American Economic Review, vol. 102, 29-59.

Huberto M. Ennis and Todd Keister, "On the Fundamental Reasons for Bank Fragility", Economic Quarterly, Vol 96 (1), 2010, 33-58.

Huberto M. Ennis, "Strategic Behavior in the Tri-Party Repo Market," Economic Quarterly, Vol 97 (4), 2011, 389-413.

Patrick Bolton and Olivier Jeanne, "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," IMF Economic Review, vol. 59, No. 2, 2011, 162-194.

Nicola Gennaioli, Alberto Martin, S. Rossi, "Sovereign Default, Domestic Banks and Financial Institutions,," working paper, 2012.

Atif Mian and Amir Sufi, "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default," Quarterly Journal of Economics, vol. 124, n. 4, 2009, 1449-1496.

Douglas Diamond and Raghuram G. Rajan, "Fear of fire sales, illiquidity seeking, and credit freezes,"  Quarterly Journal of Economics, forthcoming 2010.