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.ca
Office 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 Tool

Weight

Project (Recession
Analysis)
Mid Term
Project (Policy
Assessment)
Final Exam

20

Deadline (to be
confirmed)
February 6

25
20

March 5
April 10

35

April (TBD)

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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 2009
http://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 2013
http://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-andinvestment/from-crisis-to-recovery_9789264077072-en#page1
IMF World Economic Outlook Transitions and Tension October 2013
http://www.imf.org/external/pubs/ft/weo/2013/02/

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IMF Fiscal Monitor, Taxing Times, October 2013
http://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 Economics
http://www.voxeu.org/article/tale-two-depressions-what-do-new-data-tellus-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, 2009
Chapter 1, Varieties of Crises and their Dates
Chapter 2 Debt Intolerance, The Genesis of Serial Default
Manias, Panics and Crashes: A History of Financial Crises, Kindleberger
and Aliber, Wiley and Sons, 2005
Chapter 1, Financial Crisis: A Hardy Perennial
Rules of Thumb for Sovereign Debt Crises, Manasse and Roubini, IMF
Working Paper, 2005
http://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, 2008
Chapter 3, Blowing Bubbles, pp119 to 176
Sovereigns versus banks: Crises, causes and consequences, Jorda,
Scularick and Taylor, October 2013, Vox Economics
http://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, 2005
Chapter 2: The Anatomy of a Typical Crisis
Stabilizing an Unstable Economy, Hyman Minsky, McGraw Hill, 2008
Chapter 5 Perspectives on Theory
Class 6 (January 29)
Current theory
Stabilizing an Unstable Economy, Hyman Minsky, McGraw Hill, 2008
Chapter 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 217
Chapter 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 244
Section 2 The Rise of the Rational Market; Section 3 The Conquest of Wall
Street ; Section 4 The Challenge
Week 5
Class 9 (February 9)

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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/BrunnermeierOeh
mkeHandbookSystemicRisk.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, 2011
http://www.bankofcanada.ca/2011/03/publications/speeches/greatrecession-canada-perception-reality/
How did the 2008-2010 recession and recovery compare with previous
cycles? Cross, Statistics Canada, Economic Observer, January 2011
http://www.statcan.gc.ca/pub/11-010-x/2011001/part-partie3-eng.htm
Week 7

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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 201213
http://www.bankofcanada.ca/wp-content/uploads/2013/02/boc-reviewwinter-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, 2011
http://www.bankofengland.co.uk/publications/Documents/events/ccbs_cew
2011/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, 2012
http://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, 2012
http://www.brookings.edu/~/media/Projects/BPEA/Spring
%202012/2012a_DeLong.pdf
Debt, Deleveraging and the Liquidity Trap, Krugman, Vox Economics, 2010
http://www.voxeu.org/article/debt-deleveraging-and-liquidity-trap-newmodel

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Week 9
Class 17 (March 16)
Fiscal Multipliers
Fiscal Multipliers and the State of the Economy, Baum, Poplawski-Ribero
and Weber, IMF Working Paper, 2012
http://www.imf.org/external/pubs/ft/wp/2012/wp12286.pdf
The Fiscal Multiplier in forecast models: a short summary of the recent
debate, European Parliament
http://www.europarl.europa.eu/document/activities/cont/201301/2013013
0ATT60071/20130130ATT60071EN.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 2012
http://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 Impacts
http://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 Plan
http://www.budget.gc.ca/2012/plan/toc-tdm-eng.html
The Effectiveness and Scope of Fiscal Stimulus, OECD Economic Outlook,
Interim report, March 2009
http://www.oecd.org/economy/outlook/42421337.pdf

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Once on the Lips, Forever on the Hips: A Benefit Cost Analysis of Fiscal
Stimulus in OECD Countries, CD Howe Institute, Bev Dahlby 2009
http://www.cdhowe.org/pdf/backgrounder_121.pdf
OECD Economic Surveys Canada June 2012
http://www.oecd.org/eco/50543310.pdf
PBO Economic and Fiscal Outlook, Bartlett, Lao, Matier and Tapp,
Parliament of Canada, April 24, 2012
http://www.pbo-dpb.gc.ca/files/files/Publications/EFO_April_2012.pdf
Class 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, 2013
http://www.bankofcanada.ca/2013/05/publications/pressreleases/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 2013
http://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 2013
http://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 2013

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http://www.bankofcanada.ca/wp-content/uploads/2013/11/boc-reviewautumn13-murray.pdf
Assessing Financial System Vulnerabilities: an Early Warning Approach,
Pasricha, Roberts, Christensen and Howell, Bank of Canada Review
Autumn 2013
http://www.bankofcanada.ca/wp-content/uploads/2013/11/boc-reviewautumn13-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

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