Discussion Paper Details

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Title: A Crash Course on the Euro Crisis

Author(s): Markus K Brunnermeier and Ricardo Reis

Publication Date: September 2019

Keyword(s): Amplification, Euro crisis, financial crisis, Pecuniary externalities, safe asset, shadow banking, systemic risk and teaching

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: The financial crises of the last twenty years brought new economic concepts into classroom 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.

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Bibliographic Reference

Brunnermeier, M and Reis, R. 2019. 'A Crash Course on the Euro Crisis'. London, Centre for Economic Policy Research.