University of Illinois at Urbana-Champaign 
Fall 2009 
Department of Economics
Professor Emeritus Larry Neal

Economics 521, Topics in International Econ
The Origin and Development of International Financial Crises, Institutions and Markets

Class meets Tuesday & Thursday, 1:00 – 14:50, David Kinley Hall 317

Professor Neal's Office Hours: 
217 David Kinley Hall
Wednesday, 10:00 – 12:00, 
Thursday, 10:00 – 12:00; 15:00 – 17:00 

Focusing on the issues posed by today's global marketplace for the design of effective financial markets and institutions, this seminar will examine international experiments made in earlier epochs and continuing to current times. After examining the current state of financial globalization and the current credit crunch by the major international banks, we will go back to the rise of financial capitalism in the 17 th century, continue with the European experiments of the 18 th century, the spread of financial capitalism in the 19 th century, the classical gold standard before World War I, exchange controls and national experiments between the two World Wars, the Bretton Woods era after World War II, and conclude with the development of global financial relations since 1971. Students will use extensive data sets available on the course Web site to explore hypotheses about behaviors in financial markets under the varying background conditions that arose historically.

Course grade will be determined by assessment of each student's research paper due at the end of Finals week, Fall Semester. Deadline is Monday, December 14, 5 p.m. with the MSPE office, David Kinley Hall 313. Each paper will deal with a specific case study of the student's choosing, but with the approval of, and under the direction of, the course instructor. Instructions for Paper


Readings and data bases on course Web site:


(Note: there will be makeup sessions for August 25 and 27 later in the semester, based on student presentations of their research reports.)

Week 1. September 1 and 3
The Current Financial Crisis

IMF, Global Financial Stability Report, April 2009, Executive Summary and Chapter 1.GFSR April 2009, ch. 1
(Students should pay special attention to the assessment for their country, as the basis for their case study.) 
IMF, Global Financial Stability Report Update, July 2009.  GFSR July 2009 update

Carmen Reinhart and Kenneth Rogoff, “This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises,” NBER Working Paper 13882, March 2008. Eight Centuries of Crises

Carmen Reinhart and Kenneth Rogoff, “The Aftermath of Financial Crises,” NBER Working Paper 14656, January 2009. Aftermath of Crises

Week 2. September 8 and 10
Lecture September8

Charles Calomiris, "The Subprime Turmoil: What's New, What's Old, and What's Next," 
unpublished paper, August 2008, Subprime Turmoil

Gary Gorton, "The Subprime Panic," NBER Working Paper 14398, October 2008. Anatomy of the Subprime Panic

Lecture September 10

Larry Neal, "The Perils of Moving from Personal to Impersonal Finance: 1720 to 2010," unpublished paper, August 2009. Perils of Impersonal Finance

Marc Flandreau et al., "Underwriters, rating agencies, and emerging market debt," August 21, 2009. Emerging Market Debts

Week 3. September 15 & 17
The Dutch “Bell Jar”
: From Tulipmania to Financial Revolutions

Larry Neal, "How It All Began: The Monetary and Financial Architecture of Europe from 1648 to 1815," Financial History Review, 7:2 (October 2000), pp. 117-140.How It All Began

Larry Neal, "Review of Anne Goldgar, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, Chicago and London: University of Chicago Press, 2007." review Tulipmania reviewed,

Oscar Gelderblom and Joost Jonker, “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595-1612,” Journal of Economic History, 64 (September 2004), pp. 641-72. Dutch Capital Market

Lodewijk Petram, " How the World's First Stock Exchange Developed into a Well-functioning Market: The Amsterdam Market for VOC-shares, 1602-1700," paper at WEHC conference, August 2009. First Stock Exchange


Stephen Quinn and Will Roberds, “An Economic Explanation of the Early Amsterdam Bank, Debasement, Bills of Exchange, and the Emergence of the First Central Bank,” in The Origins and Development of Financial Markets and Institutions, ch. 2.Dutch Central Banking

Lehman Anniversary

Week 4. September 22 & 24 

Note: Chapters 2 and 3 of the October Global Financial Stability Report have just appeared.

The First Financial Crises From Bill of Exchange to Bubble Time

Peter M. Garber, "Famous First Bubbles," Journal of Economic Perspectives, 4:2 (Spring 1990), pp. 35-54. Famous First Bubbles

François Velde, “John Law's System and its Aftermath, 1718-1725,” The Origins and Development of Financial Markets and Institutions, ch. 4 . 
Velde on John Law's System

Rational vs Irrational Analyses of South Sea Bubble

Ann Carlos and LarryNeal, “The Microstructure of the Early London Capital Market: Bank of England Shareholders during and after the South Sea Bubble, 1720–1725,” Economic History Review, LIX:3 (September 2006), pp. 498-538 . Carlos & Neal

Richard Dale, Johnnie E. V. Johnson, and Leilei Tang, "Financial markets can go mad: evidence of itrrational behaviour during the South Sea Bubble," Economic History Review, 58:2 (2005), pp. 233-271. Financial markets go mad

Gary S. Shea, "Financial market analysis can go mad (in the search for irrational behaviour during the South Sea Bubble)," Economic History Review, 60:4 (2007), pp. 742-765. Analysis can go mad

Week 5. September 29 & October 1
 Chapters 2 and 3 of the October Global Financial Stability Report have just appeared.
GSFRch3Oct09; Slides from GFSR ch. 2Team 1 Presentation of Chapter 2, Team 2 Presentation of Chapter 3

The Beginning of Modern Capital Markets 
Why Britain was first

Michael Bordo and Eugene N. White, “A Tale of Two Currencies: Revolutions: British and French Finance During the Napoleonic Wars,”Journal of Economic History, 51:2 (June 1991), pp. 303-316. Bordo and White's Tale

Robert J. Barro, "Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics, 20 (1987), pp. 221-247. Barro on Tax Smoothing, UK example

Regulatory Reform, Then and Now

Larry Neal, “The Bank of England's First Return to Gold and the Stock Market Crash of 1825,” Federal Reserve Bank of St. Louis Review,(May-June 1998). The First Global Financial Crisis, 1825

Gerard Caprio, "Financial Regulation in a Changing World: Lessons from the Recent Crisis," September 2009 paper. Financial Regulation in Future

Week 6. October 6 & 8

International Comparisons 
US, France, & Germany by Comparison

Richard Sylla, “Comparing the British and US Financial Systems, 1790-1840,” The Origins and Development of Financial Markets and Institutions, ch. 7. Sylla on the Genius of Hamilton

Philip Hoffman, Jean-Laurent Rosenthal, and Gilles-Postel-Vinay, Priceless Markets: The Political Economy of Credit in Paris , 1660-1870,Chicago : University of Chicago Press , 2000, chs. 10 & 11. Priceless Markets (?)

Timothy Guinnane, “Delegated Monitors, Large and Small: Germany 's Banking System, 1800-1914,” Journal of Economic Literature, 40:1 (March 2003), pp. 73-134. Guinnane on the German Banking System

The Lehman Bankruptcy -- What Could Have Been Done? Presentations by Team Lehman

Evaluation of Response by John Taylor, Taylor's Appraisal

Week 7. October 13 and 15
The Gold Standard and the First Global Financial Markets 
Mysteries of the Gold Standard

Is China the Problem?: Presentation by Team China The role of China today

Barry Eichengreen and Michael Bordo, “Crises Now and Then: Lessons from the Last Era of Financial Globalization,”  NBER working paper 8716,  January 2002. Crises Then and Now

Larry Neal and Marc Weidenmier, “How It All Began: Financial Contagion in the History of Globalization,” in Michael Bordo, Allen Taylor, and Jeffrey G. Williamson, eds., The History of Globalization, Chicago : NBER and University of Chicago Press, 2004. Financial Contagions?

Kerry Odell and Marc Weidenmier, "Real Shock, Monetary Aftershock: The 1906 San Francisco Earthquake and the Panic of 1907," Journal of Economic History, 64:4 (December 2004), pp. 1002-1026. Real shock, Panic

Lessons from Korea: presentation by Team Korea TeamKorea1TeamKorea2TeamKorea3TeamKorea4

(Web data base on the gold standard capital markets) Bond Yields Short-Term Interest Rates Exchange Rates (3 month bills, Gold and Silver)

Week 8. October 20 and 22
The Great Depression and Financial Reforms

Lessons from the Periphery: presentation by Team Outsiders

Causes and Consequences of the Great Depression

Economic historians approaches 
Barry Eichengreen,"The Origins and Nature of the Great Slump Revisited, Economic History Review, 45, No. 2 (May 1992), pp. 213-239.Great Slump Revisited

Eugene White (1990), "The Stock Market Boom and Crash of 1929 Revisited,” Journal of Economic Perspectives , 4 (Spring 1990), 67-84.Boom and Crash in 1929

Charles Calomiris (1993), "Financial Factors in the Great Depression,” Journal of Economic Perspectives , 7 (Spring 1993), 61-85. Financial Factors Debt Deflation

Week 9. October 27 and 29
Economists approaches
 and on to Bretton Woods Birth & Death of Bretton Woods

Ben Bernanke, "The Macroeconomics of the Great Depression: A Comparative Approach," NBER working paper 4814, August 1994.Bernanke Blames France

Raghuram Rajan and Luigi Zingales, "The Great Reversals: The politics of financial developments in the twentieth century," The Journal of Financial Economics, 69 (2003), pp. 5-50. Rajan & Zingales on Consequences

The Bank of US controversy: Lucia attacks Friedman & SchwartzFriedman & Schwartz attack backLucia defendedF & S defended

Week 10. November 3 & 5
Student Presentations of Case Studies

Team 1: Jaruayporn Chaoensombatamorn, Miao Wang, Yu Zhang

Team 2: Firman Hidayat, Frida Sinurat, Xiaowei Tian

Week 11. November 10 and 12
Student Presentations of Case Studies

Team Lehman: Hsuan-Yin (Yumi) Yang, Yi Wang, Yizhi Wang,

Team China: Ruoyu Shao, Jingjing Yao, Shuo Cai

Weeks 12. November 17 and 19
Student Presentations of Case Studies

Team Korea: Jeong Heon Lee, Sunghyeok Kim, Yongjin Park, Yongwoo Lee

Team Outsiders: Yuki Kumagai, Ignacio Llano, Mehmet Arabul

Week 13. December 1 and 3

What is to be done now? What Is To Be Done?

Frederic Mishkin, “Global Financial Instability: Framework, Events, Issues,” The Journal of Economic Perspectives, 13:4 (Autumn, 1999), pp. 3-20. 
Mishkin on Global Finance

Gerard Caprio and Patrick Honohan, "Restoring Banking Stability: Beyond Supervised Capital Requirements," The Journal of Economic Perspectives, 13:4 (Autumn, 1999), pp. 43-64.
New Regulations

After New Regulation, Re-Globalization What Next?

Jeremy Atack, "Financial Innovations and Crises: The View Backwards from Northern Rock," in The Origins and Development of Financial Markets and Institutions, ch. 1 Financial Innovations and Crises

Larry Neal, "Lessons from History?" in The Origins and Development of Financial Markets and Institutions, ch. 15. Lessons for 21st Century

Week 14. December 8 (last class)

Avijit Dutta, "What to Expect in Emerging Markets Now," Morningstar analysis.
Risk, How to Manage

Assessed Essays Due – Monday, December 14, 5 p.m. with the MSPE office, David Kinley Hall 313.