Term:Spring

Course Code:

Campus:Main Campus

Academic Organization:Economics

Prerequisites:

Credit:3（48 teaching hours）

Course Components:Lectures Required

Course Note:Optional for economics and finance student

Course Description:

The great recession is a stark reminder that financial frictions are a key driver of business cycle fluctuations. Imbalances can build up during seemingly tranquil times until a trigger leads to large and persistent wealth destructions potentially spilling over to the real economy. While in normal times the financial sector can mitigate financial frictions, in crisis times the financial sectors fragility adds to instability. Adverse feedback loops and liquidity spirals lead to non-linear effects with the potential of causing a credit crunch.

The course is designed to understand the macroeconomic implications of financial frictions straddling two branches of economics: macroeconomics and finance.It will first cover the two workhouse models of macro-finance in detail: Bernanke, Gertler and Gilchrist (1999), Kiyotaki and Moore (1997). Two or three periods of models will be introduced to students. Then we will talk about run on commercial banks via Diamond and Dybvig (1983) and run on shadow banks via Gertler,Kiyotaki and Prestipino (2020). After introducing these models of credit cycle and bank run, we will discuss the leverage cycle empirically and theoretically: Adrian and Shin (2009), John Geanakoplos (2010). Moreover, if time allowed, we will dig into the interaction between market liquidity and funding liquidity: Brunnermier and Pedersen (2009). Finally we will touch the other dimension of macro-finance,that is applying macro methods to study asset pricing: Campbell and Cochrane (1999), Bansal and Yaron (2004), Adam,Marcet and Nicolini (2016).