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January 6, 2015

ECO4199: Theoretical and Empirical Approaches to Issues in Canadian Public Policy

ECO4199: Theoretical and Empirical Approaches to Issues in Canadian Public Policy (3,0,0) 3 cr.

A review of the 2008 world financial crisis from a theoretical and empirical perspective. An examination of the economic and fiscal outcomes and longer-term consequences of the global recession in Canada and abroad. The potential origins or causes of the crisis. A review of the literature on financial crises. The role and impact of debt and deleveraging in an economy. The use of monetary and fiscal policy to stabilize an unstable economy. The role of financial capitalism and innovation.

Winter Monday 14:30-16:30 Thursday 16:00 17:30 CBY E016

Teacher: Kevin Page, Jean-Luc Ppin Research Chair, Kevin.Page@uOttawa.caOffice Hours: Tuesday 13:00 to 16:00 and/or via arrangement

General Objectives

To develop a broad understanding of the factors that led to the 2008 world financial crisis, how nations responded and the lessons learned (or not learned).

To encourage critical thinking on the current state of economic and financial theory, on the institutions responsible for oversight of our financial system, and the policies used (and not used) to stabilize economies.

Specific Objectives

To develop practical and theoretical knowledge of the factors that contributed to the financial crisis including asset price bubbles, sub prime mortgages, the use of leverage, financial complexity, compensation structure and bank regulation.

To examine the historical literature and conventional and unconventional wisdom around the theory of markets, market failure and the case for public intervention.

To examine the evolution of data around the 2008 world financial crisis output, labour and financial markets and government sector.

To develop an informed view of the monetary and fiscal policy options (stimulus, austerity) recommended by international agencies and their impacts in Canada and abroad.

To review the roles and responsibilities of financial capitalism.

Teaching Methods

A wide range of methods will be employed including lectures, discussion and group work and practical exercises. The focus will be on active learning.

To strengthen understanding, students will be encouraged to do readings from a wide source and debate concepts and ideas in the classroom. Students will be given opportunities to focus on empirical and/or theoretical dimensions around the financial crisis and interact with experts and elected representatives currently working on the fall out from the financial crisis.

University guidelines on plagiarism will be strictly enforced. See https://www.uottawa.ca/about/sites/www.uottawa.ca.about/files/plagiarism.pdf

Grading and Assessment Criteria

Grading ToolWeightDeadline (to be confirmed)

Project (Recession Analysis)20February 6

Mid Term25March 5

Project (Policy Assessment)20April 10

Final Exam35April (TBD)

Projects are team based. The project on recession analysis will allow students to examine and analyze the impact of the 2008 recession in Canada from a macroeconomic (GDP, employment, inflation, etc) or sector basis (manufacturing, retail etc). The project on policy assessment will allow students to examine, analyze and critique the policy options chosen in Canada (fiscal or monetary) to stabilize the economy.

Course Schedule

Week 1

Class 1 (January 12)

Overview of course subject matter, issues, approach, requirements, source materials. Discuss projects.

How did Economists Get it So Wrong? Paul Krugman New York Times Magazine, September 2009http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=all&_r=0

It is not over until it is over, Larry Summers on lessons learned about 2008 financial crisis. IMF Research Conference 2013http://www.youtube.com/watch?v=KYpVzBbQIX0&feature=youtu.be

Class 2 (January 15)

The economic and fiscal impact of the 2008 world recession. From a data perspective, what happened in terms of output and jobs, etc?

From Crisis to Recovery, The Causes, Course and Consequences of the Great Recession Keely and Love, OECD Insights,http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/from-crisis-to-recovery_9789264077072-en#page1

IMF World Economic Outlook Transitions and Tension October 2013http://www.imf.org/external/pubs/ft/weo/2013/02/

IMF Fiscal Monitor, Taxing Times, October 2013http://www.imf.org/external/pubs/ft/fm/2013/02/fmindex.htm

What do the new data tell us? Barry Eichengreen, Kein Hjortshol, March 2010, Vox Economicshttp://www.voxeu.org/article/tale-two-depressions-what-do-new-data-tell-us-february-2010-update

Haver Analytics , Library (data)

Week 2

Class 3 (January 19)

The varieties of crises. History and lexicons.

This Time is Different: Eight Centuries of Financial Folly, Reinhart and Rogoff, Princeton University Press, 2009Chapter 1, Varieties of Crises and their DatesChapter 2 Debt Intolerance, The Genesis of Serial Default

Manias, Panics and Crashes: A History of Financial Crises, Kindleberger and Aliber, Wiley and Sons, 2005Chapter 1, Financial Crisis: A Hardy Perennial

Rules of Thumb for Sovereign Debt Crises, Manasse and Roubini, IMF Working Paper, 2005http://www.imf.org/external/pubs/ft/wp/2005/wp0542.pdf

Class 4 (January 22)

Some History on Bubbles

The Ascent of Money; A Financial History of the World, Niall Ferguson, Penguin Press, 2008Chapter 3, Blowing Bubbles, pp119 to 176

Sovereigns versus banks: Crises, causes and consequences, Jorda, Scularick and Taylor, October 2013, Vox Economicshttp://www.voxeu.org/article/private-and-public-debt-crises-1870-now

Week 3

Class 5 (January 26)

A theoretical perspective on financial crises

Manias, Panics and Crashes: A History of Financial Crises, Kindleberger and Aliber, Wiley and Sons, 2005Chapter 2: The Anatomy of a Typical Crisis

Stabilizing an Unstable Economy, Hyman Minsky, McGraw Hill, 2008Chapter 5 Perspectives on Theory

Class 6 (January 29)

Current theory

Stabilizing an Unstable Economy, Hyman Minsky, McGraw Hill, 2008Chapter 6 The Current Standard Theory: The After-Keynes Synthesis

Week 4

Class 7 (February 2)

Market Failure

How Markets Fail, John Cassidy, Penquin, 2009 pp 125 to 217Chapter 10 Taxonomy of Failure, Chapter 11 The Prisoners Dilemma, Chapter 12 Hidden Information, Chapter 13 Keyness Beauty Contest, Chapter 14 The Rational Herd, Chapter 15 Psychology Returns to Economics, Chapter 16 Hyman Minisky and Ponzi Finance

Class 8 (February 5)

Financial Markets Perspective

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, Justin Fox, Harper-Collins, 2009 pp 147 to 244Section 2 The Rise of the Rational Market; Section 3 The Conquest of Wall Street ; Section 4 The Challenge

Week 5

Class 9 (February 9)

Theoretical Overview

Bubbles, Financial Crises, and Systemic Risk, Brunnermeier and Oehmke, Princeton and Columbia, draft for Handbook of the Economics of Finance,http://www0.gsb.columbia.edu/faculty/moehmke/papers/BrunnermeierOehmkeHandbookSystemicRisk.pdf

Class 10 (February 12)

Origins of the 2008 Financial Crisis

After the Music Stopped: The Financial Crisis, the Response and the Work Ahead, Alan Blinder, Penguin, 2013 pp 27 to 87

Break week February 15 to 21

Week 6

Class 11 (February 23)

The panic

After the Music Stopped: The Financial Crisis, the Response and the Work Ahead, Alan Blinder, Penguin pp 87 to 176

Class 12 (February 26)

The Recession and Recovery in Canada

The Great Recession in Canada: Perception vs Reality, Jean Boivin, Former Deputy Governor of the Bank of Canada, March 28, 2011http://www.bankofcanada.ca/2011/03/publications/speeches/great-recession-canada-perception-reality/

How did the 2008-2010 recession and recovery compare with previous cycles? Cross, Statistics Canada, Economic Observer, January 2011http://www.statcan.gc.ca/pub/11-010-x/2011001/part-partie3-eng.htm

Week 7

Class 13 (March 2)

The Recession and Recovery in the US

The US Recovery from the Great Recession: A Story of Debt and Deleveraging, Lavender and Parent, Bank of Canada Review Winter 2012-13http://www.bankofcanada.ca/wp-content/uploads/2013/02/boc-review-winter-12-13-lavender.pdf

Class 14 (March 5)

Impact of Policy Analysis and Advice

The Global Financial Crisis and the Great Recession: Cause, Effects, Measures and Consequences for Economic Analysis and Policy, Berg, Workshop on Monetary Policy, Bank of England, 2011http://www.bankofengland.co.uk/publications/Documents/events/ccbs_cew2011/paper_berg.pdf

Week 8

Class 15 (March 9)

Role of Countercyclical Macroeconomic Policies

From Recession to Recovery; How Soon and How Strong, Kannan, Scott and Toerrones, IMF, 2012http://www.imf.org/external/np/seminars/eng/2012/fincrises/pdf/ch8.pdf

Class 16 (March 12)

Fiscal Policy

Fiscal Policy in a Depressed Economy, Delong and Summers, Brookings Papers on Economic Activity, 2012http://www.brookings.edu/~/media/Projects/BPEA/Spring%202012/2012a_DeLong.pdf

Debt, Deleveraging and the Liquidity Trap, Krugman, Vox Economics, 2010http://www.voxeu.org/article/debt-deleveraging-and-liquidity-trap-new-model

Week 9

Class 17 (March 16)

Fiscal Multipliers

Fiscal Multipliers and the State of the Economy, Baum, Poplawski-Ribero and Weber, IMF Working Paper, 2012http://www.imf.org/external/pubs/ft/wp/2012/wp12286.pdf

The Fiscal Multiplier in forecast models: a short summary of the recent debate, European Parliamenthttp://www.europarl.europa.eu/document/activities/cont/201301/20130130ATT60071/20130130ATT60071EN.pdf

Class 18 (March 19)

Getting fiscal policy right

Fiscal Consolidation: At what speed? Blanchard and Leigh, IMF, Vox Economics, http://www.voxeu.org/article/fiscal-consolidation-what-speed

Walking Hand in Hand: Fiscal Policy and Growth in Advanced Economies, Cottarelli and Jaramillo, May 2012http://www.imf.org/external/pubs/ft/wp/2012/wp12137.pdf

Week 10

Class 19 (March 23)

Fiscal policy in Canada

Federal Budget 2009, Annex 1: Employment and Output Impactshttp://www.budget.gc.ca/2009/plan/bptoc-eng.html

Federal Budget 2012, Chapter 6 Fiscal Outlook; Annex 1 Responsible Spending; Annex 2: The Stimulus Phase of Canadas Action Planhttp://www.budget.gc.ca/2012/plan/toc-tdm-eng.html

The Effectiveness and Scope of Fiscal Stimulus, OECD Economic Outlook, Interim report, March 2009http://www.oecd.org/economy/outlook/42421337.pdf

Once on the Lips, Forever on the Hips: A Benefit Cost Analysis of Fiscal Stimulus in OECD Countries, CD Howe Institute, Bev Dahlby 2009http://www.cdhowe.org/pdf/backgrounder_121.pdf

OECD Economic Surveys Canada June 2012http://www.oecd.org/eco/50543310.pdf

PBO Economic and Fiscal Outlook, Bartlett, Lao, Matier and Tapp, Parliament of Canada, April 24, 2012http://www.pbo-dpb.gc.ca/files/files/Publications/EFO_April_2012.pdfClass 20 (March 26)

Lessons learned for Monetary Policy from the Financial Crisis

Financial Crisis Taught Important Lessons About Monetary Policy, Governor of Bank of Canada Mark Carney, Speech, 2013http://www.bankofcanada.ca/2013/05/publications/press-releases/financial-crisis-taught-important-lessons/

The Role of Monetary Policy in addressing the Crisis in the Euro Area, President of the ECB Mario Draghi, Speech, April 2013http://www.ecb.europa.eu/press/key/date/2013/html/sp130415.en.html

Week 11

Class 21 (March 30)

Monetary and Fiscal Policy Interaction

Crunch Time: Fiscal Crises and the Role of Monetary Policy, Greenlaw, Hamilton Hooper and Mishkin, Pape for US Monetary Policy Forum, NYC, February 2013 (revised July 2013)http://research.chicagobooth.edu/igm/usmpf/download2.aspx

Discussion of Crunch Time: Fiscal Crises and the Role of Monetary Policy Governor Powell of the Federal Reserve, Conference at University of Chicago, February 2013http://www.federalreserve.gov/newsevents/speech/powell20130221a.htm

Class 22 (April 2)

Monetary Policy in Canada

Monetary Policy Decision Making at the Bank of Canada, Murray, Bank of Canada Review, Autumn 2013http://www.bankofcanada.ca/wp-content/uploads/2013/11/boc-review-autumn13-murray.pdf

Assessing Financial System Vulnerabilities: an Early Warning Approach, Pasricha, Roberts, Christensen and Howell, Bank of Canada Review Autumn 2013http://www.bankofcanada.ca/wp-content/uploads/2013/11/boc-review-autumn13-pasricha.pdf

Week 12

April 6 Easter Monday

Class 23 (April 9)

Reform (1)

After the Music Stopped: The Financial Crisis, the Response and the Work Ahead, Alan Blinder, Penguin, Part IV The Road to Reform pp 263 to 290

Reform (II)

After the Music Stopped: The Financial Crisis, the Response and the Work Ahead, Alan Blinder, Penguin, Part IV The Road to Reform pp 290 to 364

Week 13

Class 24 (April 13)

Reform (III)

After the Music Stopped: The Financial Crisis, the Response and the Work Ahead, Alan Blinder, Penguin, Part IV Looking Ahead Getting the Fed Back to Normal pp 368 to 386

Finance and the Good Society, Robert Shiller, Princeton University Press, 2012, Chapter 1, Finance, Stewardship and Our Goals pp1 to 18; Chapter 26 Speculative Bubbles and their Costs to Society pp 178 to 187; Epilogue pp 231 to 239