With alarming frequency, modern economies go through macro-financial crashes that arise from the financial sector and spread to the broader economy, inflicting deep and prolonged recessions. A Crash Course on Crises brings together the latest cutting-edge economic research to identify the seeds of these crashes, reveal their triggers and consequences, and explain what policymakers can do about them.
Each of the book’s ten self-contained chapters introduces readers to a key economic force and provides case studies that illustrate how that force was dominant. Markus Brunnermeier and Ricardo Reis show how the run-up phase of a crisis often occurs in ways that are preventable but that may go unnoticed and discuss how debt contracts, banks, and a search for safety can act as triggers and amplifiers that drive the economy to crash. Brunnermeier and Reis then explain how monetary, fiscal, and exchange-rate policies can respond to crises and prevent them from becoming persistent.
With case studies ranging from Chile in the 1970s to the COVID-19 pandemic, A Crash Course on Crises synthesizes a vast literature into ten simple, accessible ideas and illuminates these concepts using novel diagrams and a clear analytical framework.
Markus K. Brunnermeier is the Edwards S. Sanford Professor of Economics at Princeton University. His books include The Resilient Society and The Euro and the Battle of Ideas (Princeton). Ricardo Reis is the A. W. Phillips Professor of Economics at the London School of Economics. He is a winner of the 2021 Yrjö Jahnsson Award and advises many central banks.
- 1 Introduction
- 1.1 Crashes
- 1.2 Organization of the Book
- 1.3 Uses of the Book
- 1.4 Acknowledgments
- PART I. GROWING FRAGILITIES: THE RUN-UP TO CRISES
- 2 Bubbles and Beliefs
- 2.1 A Model of Bubbles with a Keynesian Beauty Contest
- 2.2 The Japanese Bubble of the Mid-1980s
- 2.3 The Internet Bubble of 1998–2000
- 3 Capital Inflows and Their (Mis)allocation
- 3.1 A Model of Misallocation
- 3.2 The Seeds of the Euro Crisis: Portugal’s Twenty-First Century Slump
- 3.3 Chile’s 1970s Liberalization and 1982 Crash
- 4 Banks and Their Cousins
- 4.1 Modern and Shadow Banks
- 4.2 U.S. Subprime Mortgages and Securitization
- 4.3 The Spanish Credit Boom of the 2000s
- PART II. CRASHES: TRIGGERS AND AMPLIFIERS
- 5 Systemic Risk, Amplification, and Contagion
- 5.1 Strategic Complementarities, Amplification, Multiplicity
- 5.2 Systemic Risk in the Irish Banking Sector in the 2000s
- 5.3 The Emerging Markets’ Storm of 1997–98
- 6 Solvency and Liquidity
- 6.1 Debt and the Challenging Illiquidity-Insolvency Distinction
- 6.2 The Run on the German Banking System in 1931
- 6.3 The Greek Sovereign Debt Crisis of 2010–12 and the IMF
- 7 The Nexus between the Private and Public Sectors
- 7.1 The Diabolic/Doom Loop
- 7.2 European Banks and Their Sovereigns in 2007–10
- 7.3 Argentina’s 2001–02 Crisis
- 8 The Flight to Safety
- 8.1 Safe Assets
- 8.2 Borrowing Costs in the Euro Area: The 2010–12 Crisis
- 8.3 The Pandemic Flight to Safety of 2020
- PART III. POLICIES AND RECOVERIES
- 9 Exchange Rate Policies and the Speed of Recoveries
- 9.1 A Model of Exchange Rates and Recovery
- 9.2 The Mexican Tequila Crisis of 1994–95
- 9.3 The Lasting Stagnation from the 2008 Global Financial Crisis
- 10 The New Conventional Monetary Policy
- 10.1 Reserve Satiation and Quantitative Easing
- 10.2 The Bank of Japan’s Innovations since 1998
- 10.3 The Euro Area Yield Curve during Crisis
- 11 Fiscal Policy and the Real Interest Rates
- 11.1 Savings and Investment, Revisited
- 11.2 The Rise of Savings during the 2020 Pandemic
- 11.3 The End of the U.S. Great Depression
- PART IV. PARTING WORDS
- Bibliography
- Index
“You learn most about the character of an economy when it is in crisis, and there have been many to learn from. This book provides a first comprehensive, intuitive, and insightful description of the many macro-financial crises of recent decades. The two leading macroeconomists of our times cut through the clutter and distill essential lessons for students and policymakers.”—Gita Gopinath, First Deputy Managing Director, International Monetary Fund
“In this crash course, two top economists introduce students to what we know about financial crises, with a taste of economic theory and an abundance of fascinating case studies.”—Greg Mankiw, Harvard University
“Written by two of the leading economic thinkers today, A Crash Course on Crises is an eminently readable introduction to modern thinking about the macroeconomic and financial underpinnings of economic crises. The book, targeted at the intelligent undergraduate, the curious policymaker, and the interested public citizen, unpacks complex ideas while explaining the causes of crises as well as the tools policymakers have used to recover from them. It will be very useful as accompanying reading in any macroeconomics or macro-finance course.”—Raghuram Rajan, author of The Third Pillar
“A remarkably fresh take on teaching financial crises, drawing on examples from around the world to eloquently exposit even the most difficult concepts in a thoroughly engaging format.”—Kenneth S. Rogoff, coauthor of This Time Is Different
