Ely Lecture 2014-2015

John Geanakoplos received his BA in mathematics from Yale University in 1975 (summa cum laude), his MA in mathematics and his PhD in economics under Kenneth Arrow and Jerry Green from Harvard University in 1980. He started as an assistant professor in economics at Yale University in 1980, becoming an associate professor in 1983, professor in 1986, and the James Tobin Professor of Economics in 1994.

John Geanakoplos is one of the leading authorities on general equilibrium theory – the Arrow-Debreu and OLG models as well as those with incomplete markets – and on the economics of information. As regards the former, he established key existence and welfare results in a general incomplete markets model. More recently, his work on the leverage cycle, i.e. the relationship between leverage and asset prices, has been prominent in academic circles and in the broader debate on market fluctuations and financial regulation. As regards the latter, his reformulation with Herakles Polemarchakis of Aumann’s result on “agreeing to disagree” remains a benchmark result. He developed, with Paul Klemperer and Jeremy Bulow, the concept and the terminology of Strategic Complements that is now commonly used in game theory, industrial organization, and other fields of economics.

From 1996-2005 he was director of the Cowles Foundation for Research in Economics. He was elected a fellow of the Econometric Society in 1990 and of the American Academy of Arts and Sciences in 1999. He was awarded the Samuelson Prize in 1999 and was awarded the first Bodossaki Prize in economics in 1994 (for the best economist of Greek heritage under 40). In 1990-1991 and again in 1999-2000 he directed the economics program at the Santa Fe Institute, where he remains an external professor and chairman of the science steering committee. He spent terms as visiting professor at MSRI in the University of California, Berkeley; Churchill College; Cambridge; University of Pennsylvania; Harvard; Stanford; and MIT. From 1990-1994 he was a managing director and head of fixed income research at Kidder, Peabody & Co. He was one of the founding partners in 1995 of Ellington Capital Management, where he remains a partner. In 1970 he won the United States Junior (< 20) Open Chess Championship.

Lecture 1: Monday, March 9, 2015
Title: Leverage, Default, & Forgiveness [slides here]
Place: Mergenthaler 111
Time: 3:30 to 5 p.m.

Lecture 2: Tuesday, March 10, 2015
Title: Collateral Equilibrium, Endogenous Leverage, and the Credit Surface [slides here]
Place: Mergenthaler 111
Time: 3:30 to 5 p.m.

Lecture 3: Wednesday, March 11, 2015
Title: The Leverage Cycle [slides here]
Place: Mergenthaler 111
Time: 3:30 to 5 p.m.

Lecture 4: Thursday, March 12, 2015
Title: Financial Innovations & the Macroeconomy: Tranching, CDS, and Credit Cards [slides here]
Place: Krieger 205
Time: 3:30 to 5 p.m.

Background Readings:

Lecture 1: Leverage, Default, and Forgiveness

    1. Promises, Promises,” in W.B. Arthur, S. Durlauf and D. Lane, eds., The Economy as an Evolving Complex System, II, Addison-Wesley, Reading MA, 1997, pp. 285-320. (Intro Only)
    2. The Leverage Cycle,” in D.Acemoglu, K. Rogoff, and M. Woodford, eds., NBER Macro­economics Annual 2009, Vol. 24, University of Chicago Press, Chicago, 2010, pp. 1-65. (Intro Only)
    3. “Leverage, Default, and Forgiveness: Lessons of the American and European CrisesJournal of Macroeconomics (March 2014), 39(Part B): 313-333
    4. Mortgage Justice Is Blind” (with Susan Koniak) New York Times op-ed, October 30, 2008
    5. Matters of Principal” (with Susan Koniak) New York Times op-ed, March 4, 2009
    6. “Greek Debt and American Debt: Graduation Speech at the University of Athens Economics and Business School”, Cowles Foundation Discussion Paper 1837 (November 2011).

Lecture 2: Collateral Equilibrium, Endogenous Leverage, and the Credit Surface

    1. Promises, Promises,” in W.B. Arthur, S. Durlauf and D. Lane, eds., The Economy as an Evolving Complex System, II, Addison-Wesley, Reading MA, 1997, pp. 285-320.
    2. “Collateral Equilibrium: A Basic Framework” (with W. Zame), Economic Theory (August 2014), 56(3): 443-492
    3. “Leverage and Default in Binomial Economies: A Complete Characterization” (with A. Fostel), forthcoming, Econometrica. (2014).

Lecture 3: The Leverage Cycle

    1. Liquidity, Default, and Crashes, Endogenous Contracts in General Equilibrium,” Advances in Economics and Econometrics: Theory and Applications, Eighth World Conference, Volume II, Econometric Society Monographs, 2003, pp. 170-205.
    2. The Leverage Cycle,” in D.Acemoglu, K. Rogoff, and M. Woodford, eds., NBER Macro­economics Annual 2009, Vol. 24, University of Chicago Press, Chicago, 2010, pp. 1-65.
    3. Leverage Cycles and the Anxious Economy” (with A. Fostel), American Economic Review (2008), 98(4): 1211-1244 (lead article).
    4. “Endogenous Collateral Constraints and The Leverage Cycle” (with A. Fostel), Annual Review of Economics (May 2014). Vol 6(1): 771-799.
    5. Leverage Causes Fat Tails and Clustered Volatility” (with Stephen Thurner and J. Doyne Farmer), Quantitative Finance (May 2012), 12(5): 695-707.
    6. “Getting at Systemic Risk via an Agent-Based Model of the Housing Market” (with R. Axtell, Doyne Farmer, P. Howitt, B. Conlee, J. Goldstein, M. Hendrey, N. Palmer, C. Yang), American Economic Review: Papers and Proceedings 2012, 102(3): 53-58

Lecture 4: Financial Innovations and the Macroeconomy: Tranching, CDS, and Credit Cards

    1. Tranching, CDS, and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes” (with A. Fostel), American Economic Journal: Macroeconomics (2012), 4(1): 190-225.
    2. “Financial Innovation, Collateral and Investment” (with A. Fostel), forthcoming, American Economic Journal: Macroeconomics (2014).
    3. “Why is Too Much Leverage Bad for the Economy” (with F. Kubler) (2014).
    4. Default and Punishment in General Equilibrium” (with P. Dubey and M. Shubik), Econometrica (2005), 73(1): 1-37.
    5. Credit Cards and Inflation” (with Pradeep Dubey) Games and Economic Behavior (November 2010), 70(2): 325-353.