The contagion has traversed from the financial to the real sector, from the united states to the whole of. Financial contagion, journal of political economy, 108. Competition and financial stability wharton finance university of. This is a nice book if youre looking for a coherent overview of theoretical models of financial crises. Allen and gale 2000b developed a model of contagion with a. Franklin allen and douglas gale clarendon lectures in finance. Financial fragility, liquidity, and asset prices journal. Financial crises by franklin allen and douglas gale, the. For full access to this pdf, sign in to an existing account, or purchase an annual subscription.
In this book they assemble some of their key papers along with a fivechapter overview that not only synthesizes their work but provides a. The welfare cost of banking regulation munich personal. Franklin allen is a professor of finance in the department of finance, wharton school. Federal reserve board interconnectedness and systemic. The material denoted with in the list below will be discussed in class.
Financial innovation and risk sharing mit press the mit press. Financial crisis 6,912 words exact match in snippet view article find links to article franklin allen and douglas gale 2000, financial contagion, journal of political economy 108 1, pp. Furthermore, we also provide a claim structure called liquidity pool that can both achieve risk sharing and prevent financial contagion across regions. Financial links come from financial globalization since countries try to be more economically integrated with global financial markets. View citations in econpapers track citations by rss feed.
This paper reevaluates the allengale 2000 analysis of interbank deposits to explain financial contagion. Course on financial crises european university institute. Competition and financial stability wharton finance. Financial crises in historical perspective economics 210b barry eichengreen spring 2009 department of economics. Paper presented at the macroeconomic and policy challenges following financial meltdowns conference, international monetary fund. Financial liberalization, by expanding the volume of credit and creating uncertainty about the. View references in econpapers view complete reference list from citec citations. In 2000, franklin allen and douglas gale, for example, developed. Understanding financial crises by franklin allen, douglas. Motivation as history shows, financial crises often follow the burst of an asset price bubble e. Request pdf financial contagion financial contagion is modeled as an. Financial contagion is modeled as an equilibrium phenomenon. Liquidity pools, risk sharing, and financial contagion.
Allen and gale 2000a, reprinted here as reading 14 provide a theory of. Unfortunately, this type of regulation can hamper economic growth by shifting banks portfolios from more productive risky investment projects toward less productive but safer projects. World bank, financial sector strategy and policy department, washington, d. The work may be applied to describe the 1997 east asian crisis and the banking meltdowns which took place in the u. Sequential voting procedures in symmetric binary elections. Financial contagion, journal of political economy 108. Financial crisis and credit crunch as a result of inefficient financial intermediationwith reference to the asian financial crisis, international finance. Gale, financial contagion, journal of political economy, vol. Financial fragility bank for international settlements. Financial crises, and this led to further studies on the welfare economics of. Financial crises by franklin allen and douglas gale. Allen and gale 2000, and lagunoff and sct 2001 analyze financial contagion as a result of linkages among financial.
View citations in econpapers 496 track citations by rss feed downloads. Because liquidity preference shocks are imperfectly correlated across regions, banks hold interregional claims on other banks to. A search of economics research focusing on systemic risk or interconnectedness since 2007 yields 624 publications, twice as many as were produced in the previous 25 years. Because liquidity preference shocks are imperfectly correlated across regions, banks hold interregional claims on other banks to provide insurance against liquidity preference shocks. N2 financial contagion is modeled as an equilibrium phenomenon. Volume 108, number 1 february 2000 selectdeselect all. Mario eboli, a flow network analysis of direct balancesheet contagion in financial networks, journal of economic dynamics and control, 10.
Allen and gale 2000 define contagion as a consequence of excess spillover. Franklin allen and douglas gale argue that the view that marketbased systems are best is simplistic. Information acquisition and financial contagion request pdf. Innovations in financial services relationships and risk sharing, working paper, may 1. Franklin allen and douglas gale levines working paper archive from david k. Financial intermediation, risk sharing, financial contagion. Currency crises and monetary policy with credit constraints. Download book pdf international financial contagion pp 6795 cite as. Financial innovation and risk sharing mit press the mit press allen, franklin, gale, douglas on. When there is no aggregate uncertainty, the firstbest allocation of risk sharing can be achieved. The case for incentivesbased financial sector reforms. For example, financial markets may be bad for risk sharing. Readings economic crises economics mit opencourseware.
Financial innovation and risk sharing mit press the mit. Financial contagion franklin allen university of pennsylvania douglas gale new york university financial contagion is modeled as an equilibrium phenomenon. Vishny 1992 and allen and gale 1998 for a discussion of the costs of. Financial network structure is an important determinant of systemic risk. View enhanced pdf access article on wiley online library html view. Optimal financial crises allen 1998 the journal of. Liquidity pools, risk sharing, and financial contagion springerlink. Your use of the jstor archive indicates your acceptance of. Financial contagion and systemic risk of global financial system. Franklin allen and douglas gale have contributed substantially to the study of financial innovation, developing economic models to address the question of whether the market provides institutions and opportunities for individuals to share risks efficiently.
Professor of finance and economics, imperial college london. Strengthening financial systems in developing countries. Financial contagion franklin allen douglas gale jstor. Understanding financial crises franklin allen, douglas. Franklin allen, douglas gale, financial fragility, liquidity, and asset prices. Franklin allen is a professor offinance in the department of finance, wharton school, university of pennsylvania. An introduction to financial crises franklin allen. Franklin allen and douglas gale comparing financial systems.
Optimal financial crises, center for financial institutions working papers 9701, wharton school center for financial institutions, university of pennsylvania. Allen and gale apply risk shifting and asset substitution which. Provides the reader with an overview of the history of financial crises and the main economic tools needed for decision making in financial crises. Written by two leading academics, franklin allen, former president of the american finance association, and douglas gale. The other references constitute additional basic literature on each topic. This paper introduces banking regulation in an overlappinggenerations model and studies how. Comparing financial systems the mit press allen, franklin, gale, douglas on. Franklin allen and douglas gale 2007, understanding. Additional references may be provided during the course. Read the fulltext online edition of understanding financial crises 2007.799 1343 985 764 1663 1401 624 237 847 236 862 1297 396 1521 944 1537 50 1292 778 895 1339 982 1367 1251 273 297 1611 1383 1160 335 545 42 1471 119 425 1336 841 733 134 1016