Meeting #5: Uncertainty Traps

Date Time Location
Monday, September 10, 2018 (19 Shahrivar 1397) 15:00 – 16:00 Khatam University, Room 202

“We develop a theory of endogenous uncertainty and business cycles in which short-lived shocks can generate long-lasting recessions. In the model, higher uncertainty about fundamentals discourages investment. Since agents learn from the actions of others, information flows slowly in times of low activity and uncertainty remains high, further discouraging investment. The economy displays uncertainty traps: self-reinforcing episodes of high uncertainty and low activity. Although the economy recovers quickly after small shocks, large temporary shocks may have long-lasting effects on the level of activity. The economy is subject to an information externality but uncertainty traps may remain in the efficient allocation. Embedding the mechanism in a standard business cycle framework, we find that endogenous uncertainty increases the persistence of large recessions and improves the performance of the model in accounting for the Great Recession.”

Required Reading(s) Uncertainty Traps

Meeting #4: The Economist as Plumber

Date Time Location
Monday, August 20, 2018 (29 Mordad 1397) 15:00 – 16:00 Khatam University, Room 202

“As economists increasingly help governments design new policies and regulations, they take on an added responsibility to engage with the details of policy making and, in doing so, to adopt the mindset of a plumber. Plumbers try to predict as well as possible what may work in the real world, mindful that tinkering and adjusting will be necessary since our models gives us very little theoretical guidance on what (and how) details will matter. This essay argues that economists should seriously engage with plumbing, in the interest of both society and our discipline.”

Required Reading(s) The Economist as Plumber

Meeting #3: Global Games: Theory and Applications

Date Time Location
Monday, August 13, 2018 (22 Mordad 1397) 15:00 – 16:00 Khatam University, Room 202

Global games can be applied to the study of bank runs, bubbles, currency crises, political riots, revolutions, and any other economic situation which displays strategic complementarity. In this meeting, we discuss both the theory and its applications.

Required Reading(s) Global Games and Equilibrium Selection


Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks

Crises and Prices: Information Aggregation, Multiplicity, and Volatility

Self-Fulfilling Currency Crises: The Role of Interest Rates

Meeting #2: Government Guarantees and Financial Stability

Date Time Location
Monday, July 23, 2018 (01 Mordad 1397) 15:00 – 16:00 Khatam University, Room 202

“Government guarantees to financial institutions are common all over the world. The recent financial crisis has led to renewed interest and debate about their role and their desirability. On the one hand, government guarantees are thought to have a positive role in preventing panic among investors, and hence help stabilize the financial system. On the other hand, they may distort banks incentives, thus leading to an increase in financial fragility.” This paper provides a framework to study the effects of government guarantees on banks’ and depositors’ behavior.

Required Reading(s) Government Guarantees and Financial Stability

Meeting #1: Blockchain (Part 1)

Date Time Location
Monday, July 02, 2018 (11 Tir 1397) 15:00 – 16:00 Khatam University, Room 202

Although blockchain, cryptocurrencies’ underlying technology, has been widely covered in the media, its economics hasn’t been properly studied, yet. Consequently, blockchain will be a recurring theme in our reading group meetings. In this (the first) meeting, we review the basics of blockchain before our discussion of the assigned paper begins.

Required Reading(s) The Economic Limits of the Blockchain, by Eric Budish