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Assessing the Global Financial Crises: Financial crises Study Group

This study group met at regular intervals throughout 1999 to work on the aftermath of the East Asian financial crisis. Research has involved both illiquidity and insolvency questions. It has been approached in both informal and formal ways to show how even small macroeconomic shocks can lead to financial crisis as highly-leveraged institutions are forced into fire-sales of collateral assets. Miller refined the work he began previously that extends the Kiyotaki and Moore model of credit cycles to study events in East Asia. This has been used in a paper written with Joseph Stiglitz on a super Chapter 11 bankruptcy protection. Miller extended this work with Pongsak Luangaram to undertake applied analysis with East Asian data.


Syantan Ghosal worked on the widely cited Diamond and Dybig model of bank runs to see how it might be applied in the East Asian crisis context. While it has been assumed that insurance creates no moral hazard in the model, in a crucial step forward Ghosal attempted to introduce moral hazard into this framework. Ghosal has also been studying equilibrium selection in such an environment where there are two equilibria (specifically using the concept of 'educative stability' to characterise expectation formation).


Eric Le Borgne explored the increasing importance of moral hazard questions, deemed salient since the financial crises, in the context of credit markets. He used the work of Hollmstron and Tirole to examine currency crises and credit crunches triggered by shocks to the equity of the banking system, with reference to Japan and the Russian default.