Allen franklin and douglas gale 2000 financial contagion pdf

By franklin allen and douglas gale a complex financial system comprises both financial markets and financial interme. The other references constitute additional basic literature on. Financial fragility, liquidity, and asset prices allen. Comparing financial systems franklin allen, douglas gale. Financial crises, and this led to further studies on the welfare economics of. The viral threat to the wealth of nations covers a lot of territory. Additional references may be provided during the course.

The basel accords promote the adoption of capital adequacy requirements to increase the banking sectors stability. N2 financial contagion is modeled as an equilibrium phenomenon. Allen and gale 2000b developed a model of contagion with a perfectly. Broad theoretical framework is analyzed and empiric approach to a macroeconomic model of global banking system systemic risk and contagion is offered. Mar 22, 2007 allen s main areas of interest are corporate finance, asset pricing, financial innovation and comparative financial systems. Dec 01, 2004 franklin allen, douglas gale, financial fragility. Financial contagion journal of political economy, center for financial institutions working papers 9831, wharton school center for financial institutions, university of pennsylvania.

The disadvan tage of treating contagion as a sunspot phenomenon is that, with out some real connection between different regions, any pattern of correlations is possible. Franklin allen and douglas gale have contributed substantially to the study of financial innovation, developing economic models to address the question of. Allen and gale 2000a, reprinted here as reading 14 provide a theory of. The former provide a general equilibrium model to explain a small liquidity preference shock in one region can spread by contagion throughout the economy and the possibility of contagion depends strongly on. Franklin allen and douglas gale discuss financial fragility as large effects from small shocks. Financial contagion jpe, 2000 contc by allen and gale. January 28, 2009 financial crises in historical perspective economics 210b barry eichengreen spring 2009 department of economics monday 12. Understanding financial crises clarendon lectures in. Liquidity pools, risk sharing, and financial contagion springerlink. Franklin allen and douglas gale 2000, comparing financial systems, the mit press by giovanni ferri dipartimento di scienze economiche universita degli studi di bari. Common precursors to most financial crises in the past were. Gale in this paper, we take a step toward developing a general model to analyze mar.

Kodres and matthew pritsker 2002, a rational expectations model of financial contagion name index. Franklin allen and douglas gale levines working paper archive from david k. Jstor is a notforprofit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. Request pdf financial contagion financial contagion is modeled as an equilibrium phenomenon. Financial contagion, journal of political economy, 108. This draft working paper is to summarize theoretical contributions in the field of measuring systemic risk and contagion of financial systems. Allen franklin and douglas gale 2000 financial contagion. For example, financial markets may be bad for risk sharing. Franklin allen, douglas gale, comparing financial systems mit press, 2001, isbn 0262511258. This paper is a revision of the second chapter of my ph. An introduction to financial crises franklin allen. Provides the reader with an overview of the history of financial crises and the main economic tools needed for decision making in financial crises.

Financial crises, contagion, and the lender of last resort. Systemic risk, interbank relations and liquidity provision by the central bank, journal of money, credit and banking 32, 618. Ap plications of this idea can be found in franklin allen and douglas m. Financial contagion franklin allen university of pennsylvania douglas gale new york university financial contagion is modeled as an equilibrium phenomenon. Gale in this paper, we take a step toward developing a general model to analyze mar ket failures in the financial sector and study a complex, decentralized, financial system comprising both financial markets and financial intermediaries. Request pdf on jul 1, 2001, zeljko sevic published comparing financial systems. Competition and financial stability by franklin allen. 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. Understanding financial crises franklin allen, douglas gale. This paper reevaluates the allen gale 2000 analysis of interbank deposits to explain financial contagion. View citations in econpapers track citations by rss feed. Understanding financial crises franklin allen, douglas.

The material denoted with in the list below will be discussed in class. Franklin allen is a professor offinance in the department of finance, wharton school. Financial innovation and risk sharing the mit press. For full access to this pdf, sign in to an existing account, or purchase an annual. Franklin allen and douglas gale argue that the view that marketbased systems are best is simplistic. An alternative view is that financial crises are an inherent part of the business cycle mitchell 1941. Examples are allen and gale 2000, kiyotaki and moore 1997, lagunoff and sct 2001, and rochet and tirole 1996.

Financial crises by franklin allen and douglas gale. An introduction to financial crises franklin allen university of pennsylvania and douglas gale new york university august 14, 2007 this essay was prepared for the volume on financial crises that we edited in the international library of critical writings in economics series editor. Sequential voting procedures in symmetric binary elections. Innovations in financial services relationships and risk sharing, working paper, may 1. Financial fragility, liquidity, and asset prices journal of. Liquidity pools, risk sharing, and financial contagion. Allen and gale 2000a, reprinted here as reading 14 provide a the. The other references constitute additional basic literature on each topic. Gale 2000, financial contagion, journal of political economy, 108, 4. Paper presented at the macroeconomic and policy challenges following financial meltdowns conference, international monetary fund. View references in econpapers view complete reference list from citec citations. Professor of finance and economics, imperial college london. They show that even in such an economy there will still be significant fluctuations arising solely from these.

Allen franklin and douglas gale 2000 financial contagion journal of political from finance 125364 at massey palmerston north. Dutch tulipmania, south sea bubble, japan in the 80s and 90s etc. In a model of financial intermediation, we show that small shocks to the demand for liquidity cause either high asset. Allen and gale 2000 study financial contagions by employing a complex network model, which is the first to apply a complex network method to investigate the complex economic system.

Buy understanding financial crises clarendon lectures in finance by allen, franklin, gale, douglas isbn. A survey, working paper series 35, european central bank. Financial fragility, liquidity, and asset prices journal. Franklin allen and douglas gale 2000, financial contagion 22. Allen and gale 2000, and lagunoff and sct 2001 analyze financial contagion as a result of linkages among financial intermediaries. May 26, 2009 franklin allen and douglas gale clarendon lectures in finance. Feb 06, 2004 we define a financial system to be fragile if small shocks have disproportionately large effects.

Competition and financial stability wharton finance. As history shows, financial crises often follow the burst of an asset price bubble e. Furthermore, we also provide a claim structure called liquidity pool that can both achieve risk sharing and prevent financial contagion across regions. They formalize this idea by considering the case of an economy in which the size of financial shocks approaches zero.

This paper modifies the pecking order of asset liquidation developed in allen gale, which is essential in fragility analysis. Pdf an introduction to financial crises franklin allen. The model is to use bis locational statistics as well as national consolidated balance sheets of. Contagion and efficiency in gross and net interbank payment systems, journal of financial intermediation 7, 331. View references in econpapers view complete reference list from citec. Financial fragility 1 franklin allen department of finance wharton school university of pennsylvania philadephia, pa 19104 douglas gale department of economics new york university 269 mercer street new york, ny 3 douglas. When there is no aggregate uncertainty, the firstbest allocation of risk sharing can be achieved. Michael boss, helmut elsinger, martin summer and stefan thurner 2004. Written by two leading academics, franklin allen, former president of the american finance association, and douglas gale.

Readings economic crises economics mit opencourseware. Financial contagion is modeled as an equilibrium phenomenon. Roberto chang and andres velasco 2001, a model of financial crises in emerging marketspart v financial contagion 21. Allen and gale 2000b developed a model of contagion with a. Because liquidity preference shocks are imperfectly correlated across regions, banks hold interregional claims on other banks to provide insurance against liquidity preference shocks. Financial intermediaries and markets by franklin allen. The international library of critical writings in economics. View citations in econpapers 524 track citations by rss feed downloads. The welfare cost of banking regulation munich personal. As in my leitner is at the federal reserve bank of philadelphia.