Debt Crises and Financial Crises (AS.180.

332)

Johns Hopkins University

Spring, 2024

Instructor Prof. Stelios Fourakis

Office Wyman Park Building S-617
Phone 410-516-7601
Contact sfourakis@jhu.edu
Office Hours Thursday 10:30 a.m. - 11:30 a.m.
Time Tuesday/Thursday 9:00 a.m. - 10:15 a.m.
Venue Maryland 114

Course Description
This course will provide students with the theoretical tools and historical context to un-
derstand financial crises and debt crises. We will review famous examples, including the
banking panics of the Great Depression and the Eurozone Sovereign Debt Crises, and use
economic theory to understand how and why crises happen, as well as how policies can be
designed to prevent them or mitigate their effects. Topics to be covered include sovereign
debt crises, banking crises, private debt crises, currency crises, panics, and the relationships
between them.
Teaching Assistant
Junhyeok Shin
• Email: jshin77@jhu.edu

• Office Hours: Thursday 4:00 p.m. - 5:00 p.m.

• Location: Wyman Park Building S-625

Course Website
All course content such as announcements, slides, homework, answer keys, grades, and other

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required reading will be made available on Canvas.
Required Material
We will use a textbook as well as academic and non-academic articles in this course. Please
purchase the following text, which includes much of the content covered in the course.
• Reinhart, C. M., & Rogoff, K. S. (2009). This Time Is Different: Eight Centuries of
Financial Folly. Princeton University Press.
Articles used as supplementary material will be provided for you through Canvas.
Office Hours
The time and location of my office hours are listed above. In order to minimize waiting times
for you, please reserve a slot before attending my office hours by emailing me when during
my office hours you can come and what the meeting will be about. I may group meetings
about the same topic (e.g. questions on a homework assignment).
Grading
Your total score will be the following weighted average of your scores (out of 100) on assign-
ments and exams:
Homework 25 %
Four problem sets, best score counts for 8%,
second best for 7%, third best for 6%, fourth for 4%

HW Discussions 25 %
Four discussions, best score counts for 8%,
second best for 7%, third best for 6%, fourth for 4%

Exams 50 %
Two exams, each accounting for 25%
The dates/due-dates for all of these are listed below in the “Important Dates” section. I try
to give exams that challenge everyone in the course. If the average score on an exam is low,
I will curve the exam’s grades upward.
No extra credit can be assigned to improve your grade.
Homeworks and Homework Discussions
There will be four written problem sets during this course. For these problem sets, you may
work in groups of any size and turn in one assignment per group (if all of you choose to
work in the same group, that is fine). These homeworks are due by the start of class on the
Tuesdays listed below under “Important Dates”. They will be submitted in class in hard
copy. A completed assignment, ready to turn in, should include:
1. A cover sheet identifying the course and assignment # and listing clearly
all of the names of the group of students who contributed to it (and who
will receive a grade for the submission);
2. A second page, if necessary, listing the names of all other students that any

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 student in the group worked with on the problem set (and who will not re-
ceive a grade for this submission, but will be graded on other submissions);
3. Clearly handwritten or typed answers, arranged in the correct order, with
the correspondence between problem/section (i.e. problem 1, part c) and
answer clearly labelled.
Each homework will be listed as a group assignment on the Canvas site for this course. You
are able to select your own groups. The group associated with a submission on Canvas
should match exactly the set of students listed on its cover sheet (this makes it significantly
easier for us to enter grades).
On the Thursday before each homework is due for submission, there will be a discussion of
the problems in class. On this day, you should have a rough draft of solutions completed
(or at least, attempted) and be ready to discuss them. The class will be split into two pairs
of two groups. For the first part of the class, each group will prepare a brief explanation
of how to solve one half of the homework. Groups will be paired such that each pair has
groups working on different halves of the homework. During the second part of the class,
each group will present their explanation to the group they are paired with and answer any
questions that group may have. Your grade for these discussions is based on your
participation in formulating the explanation, presenting it, and being involved
in any Q&A that may arise.
Exams
There will be two written exams during this course. The first will be in class on March 7,
and the second will be during the final exam period for this course, on May 13. For these,
you will be allowed only writing instruments and one standard 8.5x11 inch “cheat sheet”
(front and back). Note: calculators will not be necessary to answer any questions
and therefore will not be allowed. There will be no collaboration allowed on the exams
themselves. You, however, are free to work with others on constructing your “cheat sheets,”
although you must have your own, individual copy for the exam itself.
Important Dates

Homework
HW #1 February 13
HW #2 February 27
HW #3 April 9
HW #4 April 23

HW Discussions
Discussion of HW #1 February 8
Discussion of HW #2 February 22
Discussion of HW #3 April 4
Discussion of HW #4 April 18

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 Exams
Exam #1 March 7
Exam #2 May 13, 6 pm - 9 pm

Other Policies
1. Late Assignments: Assignments that are turned in late will not be accepted. Part
of the purpose of placing less weight on problem sets with lower grades is to provide
insurance in case of an unexpected event that prevents you from completing the prob-
lem set on time. Problem sets are due at the beginning of class on the dates listed
above.
2. Problem Set Honor Code: This class has extremely permissive rules on the extent
of collaboration allowed. Please do not abuse them. You may discuss the problem
sets with each other, work together, and even submit a single homework assignment
for a group. That said, it is expected that everything a group submits is indeed the
contribution of group members, not just copied from the work of someone outside the
group. When anyone in a group receives advice from or works with people outside that
group, they must cite them appropriately in the group’s submission.
3. Exam Honor Code: Except as noted above regarding collaboration in creating “cheat
sheets,” exams must be entirely your own work. You may not copy from others, give
help, or receive it. Cheating will result in at least a zero on the exam and possibly a
zero for the course.
4. Class Rules: Externalities exist. Do not engage in activities that are distracting to
your fellow classmates. If the use of phones, laptops, iPads, etc. or any other activity
results in distractions or disruptions, I reserve the right to ask you to stop that activity
or leave the class.
Tentative Course Schedule
The schedule below is tentative. Any changes to the schedule will be announced in class
and/or on Canvas as the course proceeds. Bulleted readings will be covered in the weeks
listed just above them (for example, weeks 1-2 will cover Reinhart & Rogoff preface, pream-
ble, and chapters 1-3).

Weeks 1-2 . . . . . . . . . . . . . . . . . . . . . . . . Introduction + Mathematical Preliminaries

• Reinhart & Rogoff preface, preamble, chapters 1-3.

Weeks 2-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . External Sovereign Debt Crises

• Reinhart & Rogoff chapters 4-6.

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Weeks 5-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic Sovereign Debt and Inflation

• Reinhart & Rogoff chapters 7-9, 11, 12.

Week 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Review and Midterm Exam

Week 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank Runs

• Diamond, D.W., “Banks and Liquidity Creation: A Simple Exposition of the Diamond-
Dybvig Model”, FRB Richmond Economic Quarterly, 93, 2007, 189-200.

Week 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spring Break

Week 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Financial Crises

• Reinhart & Rogoff chapters 10, 14.

Week 10-11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private Debt Crises

• Reinhart & Rogoff chapters 13, 15.

Weeks 12-13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The “Doom Loop”

• Farhi, Emmanuel and Jean Tirole. “Deadly Embrace: Sovereign and Financial Balance
Sheets Doom Loops”, The Review of Economic Studies, 85(3), July 2018, 1781–1823.

Week 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Review