Financial crises

Lectures: 1 lecture / week, 1.5 hours / lecture

18.01 Single Variable Calculus

14.02 Principles of Macroeconomics

This mini-course is an introduction to economic theories of financial crises. We will focus on amplification mechanisms that exacerbate crises, such as leverage, fire sales, bank runs, interconnections, and complexity. We will also analyze the different perspectives on the origins of crises, such as mistaken beliefs and moral hazard, and discuss the optimal regulation of the financial system. Throughout, we will draw upon examples from financial crises around the world, especially the recent subprime financial crisis. Our objective is to gain a deeper understanding of these events by using economic theory as well as empirical evidence.

There are no required textbooks. We will rely mainly on lecture notes, and a number of optional articles will complement the notes (see Readings section).

This course is graded on a pass / fail scale. The exam will be distributed at the end of the last lecture and will be due 24 hours afterwards.

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