A Crash Course on the Euro Crisis
The financial crises of the last twenty years brought new economic concepts into classrooms discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12.
We are grateful to Luis Garicano, Philip Lane, Sam Langfield, Marco Pagano, Tano Santos, David Thesmar, Stijn Van Nieuwerburgh, and Dimitri Vayanos for shaping our initial views on the crisis, to Kaman Lyu for excellent research assistance throughout, and to generations of students at Columbia, the LSE, and Princeton to whom we taught this material over the years, and who gave us comments on different drafts of slides and text. This project has received funding from the European Union’s Horizon 2020 research and innovation programme, INFL, under grant number No. GA: 682288. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Markus K. Brunnermeier
see https://scholar.princeton.edu/markus/pages/disclosuresRicardo Reis
I have been an academic consultant or have given lectures receiving modest financial compensation at many policy institutions over the past 3 years, including the Bank of England, the FRB Richmond, the Norges Bank, and the Swiss National Bank. None of these interfered in any way with my research in this paper.