This Masters-level course introduces the theory of financial crises. The theory is discussed against the backdrop of the recent financial crises of 2007/2008 and other historical accounts of previous financial-, banking-, and currency crises. Many of these crises can be viewed as coordination games where markets suddenly swing from a socially efficient equilibrium to a socially inefficient equilibrium. An emphasis on the analysis of coordination will overarch this course and lead us to the current frontier of the research on financial crises.
In this course, students learn why financial crises occur, how they evolve, and by which means they can be prevented or, as the case may be, resolved. They should become familiar with modern methods of solving coordination games and learn to apply these methods in the context of financial crises models.