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Seminar Financial Markets and Institutions

MSc Economics
(Academic Year 2016/2017)
Prof. Dr. Harald Benink
Dr. Burak Uras
Course objective:
The aim of the seminar is to help students understand the mechanisms that make
financial institutions important for the economy. Specifically from both a theoretical
and an applied perspective, we will investigate the interactions between financial
development, short-run business cycles and long-run economic growth &
development. The course will also explore the dynamics that shape the institutions of
a societies' financial structure over the long-run, and study the complexities of
financial policy design in the context of integrated global markets.
An important final objective of the course will be to familiarize students with current
debates on financial markets, including policy issues arising from the Great Financial
Crisis of 2007-2009. In this respect, attention will be paid to lessons and
consequences for the US, Europe, Asia. Moreover, attention will be paid to the rise of
shadow banking and emerging problems with respect to market liquidity.
Course contents:
The course will consist of interactive lectures (please see below for a detailed
schedule). Students are supposed to prepare for class by studying the required
reading material and to participate actively in class discussions.
Required reading:
Papers, book chapters and other articles listed below under each lecture. The
required reading is the mandatory literature for the written exam; the recommended
reading should be considered as background reading.
Recommended prerequisites:
Students should have a strong background in money and banking, empirical
research methodologies and macroeconomics and a Bachelor's level of
mathematical statistics (and/or econometrics). Students who have done their BSc in
Tilburg should have taken all relevant courses in finance and banking and
macroeconomics, student who have done their BSc elsewhere should have
equivalent skills.
Grading:
The final course grade (100%) consists of:
Grade for written exam or written re-exam (80%)
Grade for group assignment (20%); the group assignment grade will remain
valid for the written re-exam
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Repeaters of previous years have to re-do all course elements (both written
exam/re-exam and group assignment)

Contact:
Harald Benink: H.A.Benink@tilburguniversity.edu (course coordinator)
Burak Uras: R.B.Uras@tilburgunivesrity.edu

Outline of the Course

Lecture 1: Monday, October 10 (Burak Uras)


Financial Development and Financial Crises: A Historical Perspective
Key topics:
(1)
The effects of financial development on economic modernization and
globalization (a historical perspective)
(2)
A brief history of financial crises
Required reading:
Rousseau, P., Sylla, R., 2003. Financial Systems, Economic Growth and
Modernization, NBER Working Paper.
Reinhart, C., Rogoff, K., 2008. This Time is Different: A Panoramic View of Eight
Centuries of Financial Crises, Manuscript (available at Rogoffs website).
Recommended reading:
Schumpeter, J., 1911. The Theory of Economic Development: An Inquiry into Profits,
Capital, Credit, Interest and the Business Cycle.
Sylla, R., 2002. Financial Systems and Economic Modernization, Journal of
Economic History, 62 (2), 277-292.
Rousseau, P., 2002. Historical Perspectives on Financial Development and
Economic Growth, NBER Working Paper.

Lecture 2: Thursday, October 13 (Burak Uras)


Theory of Financial Development and Economic Growth
Key topics:
(1) Why does financial development stimulate economic growth?
(2) Does economic growth also affect the level of financial development?

Required reading:
Greenwood, J., Jovanovic, B., 1990. Financial Development, Growth, and the
Distribution of Income, Journal of Political Economy, 98 (5), 1076-1107.
Recommended reading:
Banerjee, A., Newman, A., 1993. Occupational Choice and the Process of
Development, Journal of Political Economy, 101 (2), 274-298.
Bencivenga, V., Smith, B., 1991. Financial Intermediation and Endogenous Growth,
Review of Economic Studies, 58 (2).
Bencivenga, V., Smith, B., Starr, R., 1997. Transaction Costs, Technological Choice,
and Endogenous Growth, Journal of Economic Theory, 67, 153-177.
King, R., Levine, R., 1993. Finance, entrepreneurship, and growth, Journal of
Monetary Economics, 32.
Uras, B., 2014. Financial Development, Long-Term Finance and Macroeconomy:
The Role of Secondary Markets, European Banking Center Working Paper.

Lecture 3: Monday, October 24 (Burak Uras)


From Theory to Measurement: Financial Development and Cross-Country
Income Differences
Key topics:
(1) How can we measure the effects of financial frictions in macro models?
(2)
What fraction of cross-country income differences can be explained by
financial frictions?
Required reading:
Antunes, A., Cavalcanti, T., Villamil, A., 2008. The Effect of Financial Repression and
Enforcement on Entrepreneurship and Economic Development, Journal of Monetary
Economics, 55 (2), 278-292.
Recommended reading:
Buera, F., Kaboski, J., Shin, Y., 2011. Finance and Development: A Tale of Two
Sectors, American Economic Review, 101 (5), 1964-2002.
Hsieh, Ch.-T., Klenow, P., 2009. Misallocation and Manufacturing TFP in China and
India, Quarterly Journal of Economics, 124 (4).
Restuccia, D., Rogerson, R., 2008. Policy Distortions and Aggregate Productivity
with Heterogeneous Establishments, Review of Economic Dynamics, 11 (4).
Uras, B., 2014. Long-Term Investment and Net-Worth Building with Limited Contract
Enforcement, Forthcoming at Macroeconomic Dynamics.

Lecture 4: Thursday, October 27 (Burak Uras)


Finance and Poverty: Theory and Experiments
Key topics:
(1) Testing the presence of borrowing constraints via field experiments
(2) Microfinance schemes in poverty alleviation
Required reading:
Banerjee, A., Duflo, E., 2010. Giving Credit Where It Is Due, Journal of Economic
Perspectives, 24 (3) 61-79.
Recommended reading:
Beck, T., Pamuk, H., Uras, B., 2014. Entrepreneurial Saving Practices and
Reinvestment: Theory and Evidence, European Banking Center Working Paper.
Carli, F., and Uras, B., 2014. Optimal Joint Liability Lending with Costly Peer
Monitoring, European Banking Center Working Paper.
De Mel, S., McKenzie, D., Woodruff, C., 2008. Returns to Capital in MicroEnterprises: Evidence from a Field Experiment, Quarterly Journal of Economics, 123
(4) 1329-1372.
Field, E., Pande, R., 2008. Repayment Frequency and Default in Micro-Finance:
Evidence from India, Journal of European Economic Association Papers and
Proceedings, 6 (2-3).
Karlan, D., and Zinman, J., 2011. Observing Unobservables: Identifying Information
Asymmetries with a Consumer Credit Field Experiment, Econometrica, 77 (6).
Murdoch, J., 1999. The Microfinance Promise, Journal of Economic Literature, 37 (4)
1569-1614.

Lecture 5: Tuesday, November 1 (Burak Uras)


Bank Runs and Systemic Risk
Key topics:
(1) The relationship between liquidity and bank runs
(2) A theory of financial contagion
Required reading:
Diamond, D., Dybvig, P., 1983. Bank Runs, Deposit Insurance, and Liquidity. Journal
of Political Economy, 91 (3), 420-442.
Recommended reading:
Allen, F., and Gale, D., 2000. Financial Contagion, Journal of Political Economy, 108
(1) 1-33.
Karaken, J., Wallace, N., 1978. Deposit Insurance and Bank Regulation: A Partial
Equilibrium Exposition, Journal of Business, 51 (3).
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Tirole, J., 2011. Illiquidity and All Its Friends, Journal of Economic Literature, 49 (2),
287-325.
Lecture 6: Thursday, November 3 (Burak Uras)
Agency Costs, Financial Constraints, Asset Prices and Business Cycles
Key topics:
(1) Aggregate productivity shocks, agency costs and firms balance sheets
(2) Explaining business cycle amplification with agency costs models
(3) Collateral value and financial constraints
Required reading:
Bernanke, B., Gertler, M., 1986. Agency Costs, Net Worth, and Business
Fluctuations, American Economic Review, 79 (1) 14-31.
Kiyotaki, N., Moore, J., 1997. Credit Chains, Journal of Political Economy.
Recommended reading:
Bernanke, B., Gertler, M., Gilchrist, S., 1996. The Financial Accelerator and Flight to
Quality, Review of Economics and Statistics, 78 (1).
Kashyap, A., Stein, J., Wilcox, D., 1993. Monetary Policy and Credit Conditions:
Evidence from the Composition of External Finance, American Economic Review, 83
(1).
Kashyap, A., Stein, J., 2000. What Do a Million Observations on Banks Say About
the Transmission of Monetary Policy? American Economic Review, 90 (3).
Williamson, S., 1986. Costly Monitoring, Financial Intermediation, and Equilibrium
Credit Rationing, Journal of Monetary Economics, 18 (2).

Lecture 7: Monday, November 7 (Burak Uras)


Asset Prices and Financial Market Meltdowns
Key topics:
(1) What factors explain asset prices and financial meltdowns?
(2) What are the macroeconomic implications of financial market collapses?
Required reading:
Brunnermeier, M., 2009. Deciphering the Liquidity and Credit Crunch 2007-2008,
Journal of Economic Perspectives 23(1), 77-100.
http://www.princeton.edu/~markus/research/papers/liquidity_credit_crunch.pdf
Levine, R., 2010. An Autopsy of the U.S. Financial System: Accident, Suicide or
Negligent Homicide? Journal of Financial Economic Policy, 2010 2(3), 196-213.
http://faculty.haas.berkeley.edu/ross_levine/papers/autopsy-4-13.pdf
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Recommended reading:
Beck, T. (Editor), 2011. The Future of Banking, CEPR.
http://www.voxeu.org/index.php?q=node/7147
Lecture 8: Thursday, November 10 (Guest lecturer, Kempen Capital
Management)
Investment Management in Turbulent Times
Recommended reading:
Powerpoint presentation (to be posted on Blackboard).

Lecture 9: Monday, November 14 (Harald Benink)


Lessons from the Great Financial Crisis: United States
Required reading:
Calomiris, C.W., R.A. Eisenbeis and R.E. Litan, 2011. Financial Crisis in the US and
Beyond, in: R.E. Litan (ed.), The World in Crisis: Insights from Six Shadow Financial
Regulatory Committees, Wharton Financial Institutions Center, University of
Pennsylvania, chapter 1.
http://finance.wharton.upenn.edu/FIC/FICPress/crisis.pdf

Lecture 10: Monday, November 21 (Harald Benink)


Lessons from the Great Financial Crisis: Challenges for the Eurozone
Required reading:
Schmidt, R.H., K. Alexander, H.A. Benink, R. Lastra and C. Wihlborg, 2011. The
Recent Financial Crisis: Lessons from Europe, in: R.E. Litan (ed.), The World in
Crisis: Insights from Six Shadow Financial Regulatory Committees, Wharton
Financial Institutions Center, University of Pennsylvania, chapter 3.
http://finance.wharton.upenn.edu/FIC/FICPress/crisis.pdf

Lecture 11: Thursday, November 24 (Kees Cools, Professor of Corporate


Finance and Governance, Tias School for Business and Society, Tilburg
University & Partner, Strategy&)
The Real Causes of the Financial Crisis
Recommended reading:
Cools, K., A. van Soest and J. van Toor, When Are Pre-Crisis Winners Post-Crisis
Losers?, Working Paper, Tilburg University (to be posted on Blackboard).
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Lecture 12: Monday, November 28 (Harald Benink)


Lessons from the Great Financial Crisis: Banking Union in Europe
Required reading:
Schmidt, R.H., K. Alexander, H.A. Benink, R. Lastra and C. Wihlborg, 2011. The
Recent Financial Crisis: Lessons from Europe, in: R.E. Litan (ed.), The World in
Crisis: Insights from Six Shadow Financial Regulatory Committees, Wharton
Financial Institutions Center, University of Pennsylvania, chapter 3.
http://finance.wharton.upenn.edu/FIC/FICPress/crisis.pdf

Lecture 13: Thursday, December 1 (Harald Benink)


Lessons from the Great Financial Crisis: Asia
Required reading:
Goh, J., S. Adiningsih and M. Socorro Gochoco-Bautista, 2011. Lessons from the
Financial Crisis: Report of the Asian Shadow Financial Regulatory Committee, in:
R.E. Litan, (ed.), The World in Crisis: Insights from Six Shadow Financial Regulatory
Committees, Wharton Financial Institutions Center, University of Pennsylvania,
chapter 2.
Harada, K., T. Hoshi, K. Hosono, S. Koibuchi and M. Sakuragawa, 2011. Lessons
from Japans Shadow Financial Regulatory Committee: Japan in the Global Financial
Crisis, in: R.E. Litan, (ed.), The World in Crisis: Insights from Six Shadow Financial
Regulatory Committees, Wharton Financial Institutions Center, University of
Pennsylvania, chapter 4.
http://finance.wharton.upenn.edu/FIC/FICPress/crisis.pdf

Lecture 14: Monday, December 5 (Harald Benink)


Shadow Banking
Required reading:
International Monetary Fund, 2014. Shadow Banking around the Globe: How Large,
and How Risky?, Global Financial Stability Report, Chapter 2, October.
http://www.imf.org/external/pubs/ft/gfsr/2014/02/index.htm
Lecture 15: Thursday, December 9 (Harald Benink)
Market Liquidity
Required reading:
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International Monetary Fund, 2015. Market Liquidity Resilient or Fleeting, Global


Financial Stability Report, Chapter 2, October.
http://www.imf.org/External/Pubs/FT/GFSR/2015/02/index.htm

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