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A Crash Course on Crises: Macroeconomic Concepts for Run-Ups, Collapses, and Recoveries
An incisive overview of the macroeconomics of financial crises—essential reading for students and policy experts alike
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.
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.
122 pages, Kindle Edition
Published June 6, 2023
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Displaying 1 - 16 of 16 reviews
January 28, 2024
A useful summary and exposition of modern the modern macro-financial approach to crises which are a combination of financial crisis and macroeconomic recession.
The book is organized around ten ideas about how fragilities grow (e.g., modern banks), how they get triggered and spread (e.g., amplification and contagion), and the macroeconomic policy response (exchange rate, monetary and fiscal). For each idea it sketches the main points—often with the help of a simple graphical model—and then provides two case studies to illustrate the idea mostly drawing on events in the last quarter century (East Asian crisis, euro zone, financial crisis in the United States, Greece, etc.) but a few older ones sprinkled in (Germany in the 1930s and the Great Depression).
Useful for classes that cover these topics or for people that regularly engage in macro-financial issues but want to add a little more rigor and linkages to the standard news discussions.
The book is organized around ten ideas about how fragilities grow (e.g., modern banks), how they get triggered and spread (e.g., amplification and contagion), and the macroeconomic policy response (exchange rate, monetary and fiscal). For each idea it sketches the main points—often with the help of a simple graphical model—and then provides two case studies to illustrate the idea mostly drawing on events in the last quarter century (East Asian crisis, euro zone, financial crisis in the United States, Greece, etc.) but a few older ones sprinkled in (Germany in the 1930s and the Great Depression).
Useful for classes that cover these topics or for people that regularly engage in macro-financial issues but want to add a little more rigor and linkages to the standard news discussions.
March 28, 2024
This book was obviously very good, but at the risk of being a smart-ass, my general meta-skepticisms of the methodology of reverse-engineering previous crises ex post remain. It's super easy to justify any model or theory in hindsight - what's stopping you from fitting your model to the data, instead of building one based on solid economic theory and then seeing if it fits the real world? Then there's the general skepticism of whether past crises can even tell us anything particularly crucial, given that ex ante black swans are unknowable. (That's a rlly smart-ass take tho) Well tbf we can rlly observe how policymakers learned a lot from history and how that knowledge rlly helped us - Bernanke immediately committed to Bagehot's dictum during the GFC, the Fed saving the Treasury market during Covid and lent generously, even becoming the buyer of last resort. But often times, solving one problem (using historical evidence) creates a new problem - the Covid-era QE that was arguably excessive as observed by the subsequent inflation that's still fucking us now. What with Powell's 'transitory inflation' BS.
Finance cannot be separated from macroeconomics, that's for sure, given the increasingly linkages and vulnerabilities in modern banks as identified in the book. In fact I had neglected my macro for nearly a year (after seriously buying into the value investor dogma/ BS of 'don't try to forecast macro. Just focus on bottom-up research'), and spent my time on fundamental analysis and finance for a long time, until an extremely good course in asset pricing re-ignited my interest in macro, weirdly enough. Finance (those taught at good econ depts) is essentially applied micro, however this branch of micro can be so satisfyingly applied to macro. Macro-finance seems to be a very good, intriguing field to specialize in.
Finally, I found the general discussion of bubbles and the authors' general advice that policy should lean against bubbles .... unsettling. I certainly do believe bubbles exist (not inconsistent with rational finance. For example, (Xiong & Scheinkman 2003) showed a very interesting model imo that likened emergent technologies (those that are obvs very susceptible to bubbles e.g., crypto, the dot com boom etc) with a call option, that's propagated by limits to arb (i.e., short-selling constraints) and disagreement, even by informed parties. The value of an option is positively related with Vol, thus when there's high disagreement i.e., high vol, the asset price inflates like fuck because no one can short it. I like this strand of literature.) However, even after decades of behavioural finance work, there's no way of systematically identifying bubbles ex ante, which is my biggest criticism, which I share with Gene Fama. You can only identify a bubble ex post, i.e., AFTER it has popped so what's the fucking point? All these nice little theories, intriguing books like 'Manias, Panics, and Crashes' - they're all just anecdotes. 'It takes a theory to beat a theory' - Andrew Lo. Without a systematic method to lean against bubbles, this work can only remain unsatisfying.
Finally, I'm confused at the agenda of this book. I listened to Ricardo Reis on the Macro Musings podcast and he said this book addressed a gap in the existing textbooks on macro-finance. However, very little here is new. Several models here e.g., multiple equilibria were even in my 1st-year econ textbook. The many case studies of Covid were also nice. It's quite exhilarating these days as I'm old enough where many case studies are events that I've actually lived through and have formed my own views on, in real time e.g., Covid, QT, recent yield curve inversions. Whereas a few years ago when I was 18, many case studies were on butt-fuck events that happened decades b4 I was born, or have a memory on e.g., Asian Financial Crisis, GFC, Great Depression etc.
The authors have claimed success, because the goal which they set for themselves in the intro - that 'the more curious reader reach the end not fully satisfied', has been achieved.
Finance cannot be separated from macroeconomics, that's for sure, given the increasingly linkages and vulnerabilities in modern banks as identified in the book. In fact I had neglected my macro for nearly a year (after seriously buying into the value investor dogma/ BS of 'don't try to forecast macro. Just focus on bottom-up research'), and spent my time on fundamental analysis and finance for a long time, until an extremely good course in asset pricing re-ignited my interest in macro, weirdly enough. Finance (those taught at good econ depts) is essentially applied micro, however this branch of micro can be so satisfyingly applied to macro. Macro-finance seems to be a very good, intriguing field to specialize in.
Finally, I found the general discussion of bubbles and the authors' general advice that policy should lean against bubbles .... unsettling. I certainly do believe bubbles exist (not inconsistent with rational finance. For example, (Xiong & Scheinkman 2003) showed a very interesting model imo that likened emergent technologies (those that are obvs very susceptible to bubbles e.g., crypto, the dot com boom etc) with a call option, that's propagated by limits to arb (i.e., short-selling constraints) and disagreement, even by informed parties. The value of an option is positively related with Vol, thus when there's high disagreement i.e., high vol, the asset price inflates like fuck because no one can short it. I like this strand of literature.) However, even after decades of behavioural finance work, there's no way of systematically identifying bubbles ex ante, which is my biggest criticism, which I share with Gene Fama. You can only identify a bubble ex post, i.e., AFTER it has popped so what's the fucking point? All these nice little theories, intriguing books like 'Manias, Panics, and Crashes' - they're all just anecdotes. 'It takes a theory to beat a theory' - Andrew Lo. Without a systematic method to lean against bubbles, this work can only remain unsatisfying.
Finally, I'm confused at the agenda of this book. I listened to Ricardo Reis on the Macro Musings podcast and he said this book addressed a gap in the existing textbooks on macro-finance. However, very little here is new. Several models here e.g., multiple equilibria were even in my 1st-year econ textbook. The many case studies of Covid were also nice. It's quite exhilarating these days as I'm old enough where many case studies are events that I've actually lived through and have formed my own views on, in real time e.g., Covid, QT, recent yield curve inversions. Whereas a few years ago when I was 18, many case studies were on butt-fuck events that happened decades b4 I was born, or have a memory on e.g., Asian Financial Crisis, GFC, Great Depression etc.
The authors have claimed success, because the goal which they set for themselves in the intro - that 'the more curious reader reach the end not fully satisfied', has been achieved.
June 18, 2023
Cliff notes — A Crash Course on Crises (Markus K. Brunnermeier, Ricardo Reis)
Macro-financial crises originate or are amplified by financial markets and have serious macroeconomic effects. Understanding, and ideally remedying, them requires a solid account of interactions between macro and financial policy. Brunnermeier and Reis condense some thinking in that intersection into perhaps the shortest economics book I’ve ever read. It’s almost too short — something that the authors claim as an objective — but serves as a great refresher or entry-point into the literature. I agree with the authors: this one is for the upper-level undergraduates, Masters (and pre-qual PhD) students, and the professional economist.
The book is split into three parts. First, risks built in the run-ups to crises: speculative bubbles, capital inflows and misallocation, and “modern” (marked-to-market and wholesale-funding-and-securitisation-powered) banking. Second, triggers and amplifiers of a crash: contagion and instability (strategic complementarities, multiple equilibria), the inevitable elision of solvency and liquidity, public-private doom loops, and risk-off flights to safety. Third, policies and recoveries: exchange rate policies, unconventional monetary policy, and fiscal policy.
If any of that interests you, I recommend that you read this book. There’s almost no point of me summarising any of it here because the authors have done such an excellent job of compression. Though, if you’d indulge, I’ll continue with a few thoughts I had. Feel free to stop reading here.
I thought the chapter on capital misallocation was excellent. There are some fairly clear links here with development economics and the general East Asian success stories. That is: the traded sector is more productive, subject to global competition. So encourage that instead of politically connected non-tradeable firms.
The chapter on modern banking is also well worth reading. A reliance on wholesale funding instead of just deposits and equity, and a traceable balance sheet (securitisation) makes the whole edifice riskier (and subject to contagion via strategic complementarities). Wholesale funding (short-term interbank and repo — collateralised) being effectively senior to deposits exposes the whole edifice again to political and legitimacy risks.
Distinguishing between solvency and liquidity in real-time is basically impossible. Another source of legitimacy risk, though once the dust settles.
Capital controls and exchange rate intervention probably a good thing when you have a lot of hot money sloshing around and a lot of foreign-denominated debt on banks’ balance sheets.
Unconventional policy and reserve satiation requiring central bank balance sheets to be huge means they now make large gains and losses in the conduct of policy. This can mean risks for independence because the link with fiscal authorities (via dividends) is more important. That said, the goal of a central bank is not to make profit, so perhaps this is a communication issue?
Fiscal authorities have meaningful effects on the equilibrium real interest rate (this is uncontroversial, but worth writing down).
Macro-financial crises originate or are amplified by financial markets and have serious macroeconomic effects. Understanding, and ideally remedying, them requires a solid account of interactions between macro and financial policy. Brunnermeier and Reis condense some thinking in that intersection into perhaps the shortest economics book I’ve ever read. It’s almost too short — something that the authors claim as an objective — but serves as a great refresher or entry-point into the literature. I agree with the authors: this one is for the upper-level undergraduates, Masters (and pre-qual PhD) students, and the professional economist.
The book is split into three parts. First, risks built in the run-ups to crises: speculative bubbles, capital inflows and misallocation, and “modern” (marked-to-market and wholesale-funding-and-securitisation-powered) banking. Second, triggers and amplifiers of a crash: contagion and instability (strategic complementarities, multiple equilibria), the inevitable elision of solvency and liquidity, public-private doom loops, and risk-off flights to safety. Third, policies and recoveries: exchange rate policies, unconventional monetary policy, and fiscal policy.
If any of that interests you, I recommend that you read this book. There’s almost no point of me summarising any of it here because the authors have done such an excellent job of compression. Though, if you’d indulge, I’ll continue with a few thoughts I had. Feel free to stop reading here.
I thought the chapter on capital misallocation was excellent. There are some fairly clear links here with development economics and the general East Asian success stories. That is: the traded sector is more productive, subject to global competition. So encourage that instead of politically connected non-tradeable firms.
The chapter on modern banking is also well worth reading. A reliance on wholesale funding instead of just deposits and equity, and a traceable balance sheet (securitisation) makes the whole edifice riskier (and subject to contagion via strategic complementarities). Wholesale funding (short-term interbank and repo — collateralised) being effectively senior to deposits exposes the whole edifice again to political and legitimacy risks.
Distinguishing between solvency and liquidity in real-time is basically impossible. Another source of legitimacy risk, though once the dust settles.
Capital controls and exchange rate intervention probably a good thing when you have a lot of hot money sloshing around and a lot of foreign-denominated debt on banks’ balance sheets.
Unconventional policy and reserve satiation requiring central bank balance sheets to be huge means they now make large gains and losses in the conduct of policy. This can mean risks for independence because the link with fiscal authorities (via dividends) is more important. That said, the goal of a central bank is not to make profit, so perhaps this is a communication issue?
Fiscal authorities have meaningful effects on the equilibrium real interest rate (this is uncontroversial, but worth writing down).
November 13, 2024
I had hoped for more from this book. I have two main quibbles.
First, I think it would have been better had it isolated the major factors in crises with a bit of theory and then produced more extensive case studies showing those factors at play. The discussion of the individual crises is very brief, just a thumbnail and sometimes less than convincing in its analysis.
Second, I would emphasize more problems with information and uncertainty. Information, even today, is hardly free, so most people face a good deal of uncertainty. To take a contemporary example, who really knows the effects of new generation of AI models on the economy? Are the valuations of AI companies reasonable? Almost all of us do not have an informed opinion on that matter. Those who invest in market indices simply assume that the market has it right. In such a situation, how are assets valued? What happens when something happens and people become skeptical that assets are properly valued? The most classic case is a bank run. Banks were the central institutions until a century ago, and they still are vital in much of the world. However, the problem of uninformed investors relying on a financial institution or a market has many forms in the contemporary world.
Third, the issue of the destruction of financial institutions is addressed in parenthetical comments. The failure of a bank does make intermediation less efficient. Information gleamed from relationships evaporates to some extent. Something similar happens whenever a financial institution, and crises are precisely when financial institutions collapse.
Fourth, I would also emphasize more the issues of flight to liquidity. These flights destroy the financial intermediation process. In a classic bank run, when a dollar is stuffed into a mattress, it is unavailable for any kind of investment.
First, I think it would have been better had it isolated the major factors in crises with a bit of theory and then produced more extensive case studies showing those factors at play. The discussion of the individual crises is very brief, just a thumbnail and sometimes less than convincing in its analysis.
Second, I would emphasize more problems with information and uncertainty. Information, even today, is hardly free, so most people face a good deal of uncertainty. To take a contemporary example, who really knows the effects of new generation of AI models on the economy? Are the valuations of AI companies reasonable? Almost all of us do not have an informed opinion on that matter. Those who invest in market indices simply assume that the market has it right. In such a situation, how are assets valued? What happens when something happens and people become skeptical that assets are properly valued? The most classic case is a bank run. Banks were the central institutions until a century ago, and they still are vital in much of the world. However, the problem of uninformed investors relying on a financial institution or a market has many forms in the contemporary world.
Third, the issue of the destruction of financial institutions is addressed in parenthetical comments. The failure of a bank does make intermediation less efficient. Information gleamed from relationships evaporates to some extent. Something similar happens whenever a financial institution, and crises are precisely when financial institutions collapse.
Fourth, I would also emphasize more the issues of flight to liquidity. These flights destroy the financial intermediation process. In a classic bank run, when a dollar is stuffed into a mattress, it is unavailable for any kind of investment.
February 16, 2025
Concise and illuminating, a crash course indeed!
August 10, 2023
Very concise and short, yet thorough and detailed explanations of macro-financial concepts and policy solutions. The efficacy is remarkable. However, the book requires understanding of some basic economic concepts.
November 13, 2025
Brunnermeier and Reis are respected academics, both practitioners in macroeconomics, with around 100 published papers in total; in part their work has focussed on monetary policy and financial crises.
So I was surprised to be underwhelmed by this book; first it is very short - from nose to navel it is less than 150 pages in length.
In the introductory chapter it purports to be aimed at for (advanced) undergraduates and also postgraduates, plus possibly a pedagogic use for lecturers - but also “quote: for well‑informed members of the public who want to understand both the theory and real‑world cases”. For such a slim volume this seems to be setting a high bar to clear. As such I have decided to judge the book by this standard as well as adding my own thoughts on the book.
The meat of the book is set out in ten chapters, each of which is grouped into one of three parts:
○ the run-up to the crisis
○ crashes: triggers and amplification
○ how recoveries happen
. . . allotting 3-4-3 chapters to each respectively.
Within barely over 100 pages this results in around 10-12 pages per chapter, in which the authors cover a wide set of crisis‑related phenomena including: bubbles, shadow banking, sovereign‑bank linkages, safe asset shortages, exchange rate dynamics, policy tools (monetary, fiscal) etc..
Each chapter follows a rigid schema, comprising a short textual run-in on the theme of the chapter, followed by three sections, the first of which is normally more hypothetical and the latter two purporting to be historic and more exemplary. Each section contains a diagram and the discourse is largely qualitative rather than analytic, principally using the figure as its reference.
The content allotted to some of the historic case studies is very sparse; for example the “Japanese asset bubble” (§2.2) is described in a mere couple of paragraphs. The “Mexican Tequila Crisis of 1994–95” (§9.2) and “Lasting Stagnation from the 2008 Global Financial Crisis” (§9.3) are not much longer, despite both being examples in encompassing chapter 9 on exchange rate policies and being preceded by one of the better leading sections.
I found the first and third parts which dealt with the leading up to and emergence from a crisis rather weak and feel they would have benefited from more detailed analyses. However the chapters in the middle part were given more attention and so tended to be the strongest for me. This may be a personal preference of mine, as well perhaps of the authors.
This middle part contains chapters (§5 - §8) discusses:
○ systemic risk
○ solvency and liquidity
○ the so-called 'Doom loop',
○ the flight to safety
. . . which together comprise the ‘Crashes: triggers and amplifiers’ topic.
The approach though out the book is extremely formulaic, the examples chosen seemingly dictated by the theme of each chapter, and so omitting some of the more important (to me) and interesting crises; around half of the content seemingly arising from an earlier paper: “A Crash Course on the Euro Crisis”.
I would have like to hear about the demise of Long-Term Capital Management in 1998, often over-looked given the events of the dotcom bubble which followed on soon after, AND no mention of tulips from Amsterdam and the mania for them in the 17th century which may be considered to set the economic balls a rolling.
As would be expected of such seasoned economists the writing is clear and very concise, there is just not enough of it to be satisfying. If the book were at least 50% longer, doubling the length of the theme chapters (§2 - §11), it would have more to recommend it. The final part, consists of a single chapter (§12) comprises six brief paragraphs and a mere 1.5 pages, gives the impression the the authors had run out of steam at this point.
There is a lot of detail in some of the earlier parts of the ten sections but these are often let down with the examples which subsequently followed.
As to its intended audience it does not appear to me to meet many of its stated aims. It may well prove to be of use to the teacher in incorporating into some lectures in order to encourage discussion and as a basis in supplementing for more detailed texts.
So it works for me as a coffee-table book; one to read on the tube when in London, or the metro or subway, when not.
For the rest of those who would wish to read a more comprehensive book I would consider looking elsewhere. One that grabbed my attention was “A History of Financial Crises” by Cihan Bilginsoy, part of the “Economics as Social Theory” series, which itself deals with more crashes and lists them, more pleasingly, chronologically - in fact it does begin with Dutch Tulip mania and finally ending with the subprime housing meltdown of the 2000’s.
Also there are the classic “Manias, Panics and Crashes” by Kindleberger and Aliber and a“Dynamic Macroeconomic Theory” by Thomas Sargent which provides a more rigorous approach to the modelling of economic crises. Plus from a viewpoint of recent financial histrionics, I recommend the book “Crashed” by Adam Tooze, which starts with the sub-prime debacle and concludes, for now at least, with Trump-conomics.
In summary “A Crash Course on Crises” is not a bad book, rather like the curator’s egg it is good in parts, but not in all. Given a little more time and effort it would be a much better one.
So I was surprised to be underwhelmed by this book; first it is very short - from nose to navel it is less than 150 pages in length.
In the introductory chapter it purports to be aimed at for (advanced) undergraduates and also postgraduates, plus possibly a pedagogic use for lecturers - but also “quote: for well‑informed members of the public who want to understand both the theory and real‑world cases”. For such a slim volume this seems to be setting a high bar to clear. As such I have decided to judge the book by this standard as well as adding my own thoughts on the book.
The meat of the book is set out in ten chapters, each of which is grouped into one of three parts:
○ the run-up to the crisis
○ crashes: triggers and amplification
○ how recoveries happen
. . . allotting 3-4-3 chapters to each respectively.
Within barely over 100 pages this results in around 10-12 pages per chapter, in which the authors cover a wide set of crisis‑related phenomena including: bubbles, shadow banking, sovereign‑bank linkages, safe asset shortages, exchange rate dynamics, policy tools (monetary, fiscal) etc..
Each chapter follows a rigid schema, comprising a short textual run-in on the theme of the chapter, followed by three sections, the first of which is normally more hypothetical and the latter two purporting to be historic and more exemplary. Each section contains a diagram and the discourse is largely qualitative rather than analytic, principally using the figure as its reference.
The content allotted to some of the historic case studies is very sparse; for example the “Japanese asset bubble” (§2.2) is described in a mere couple of paragraphs. The “Mexican Tequila Crisis of 1994–95” (§9.2) and “Lasting Stagnation from the 2008 Global Financial Crisis” (§9.3) are not much longer, despite both being examples in encompassing chapter 9 on exchange rate policies and being preceded by one of the better leading sections.
I found the first and third parts which dealt with the leading up to and emergence from a crisis rather weak and feel they would have benefited from more detailed analyses. However the chapters in the middle part were given more attention and so tended to be the strongest for me. This may be a personal preference of mine, as well perhaps of the authors.
This middle part contains chapters (§5 - §8) discusses:
○ systemic risk
○ solvency and liquidity
○ the so-called 'Doom loop',
○ the flight to safety
. . . which together comprise the ‘Crashes: triggers and amplifiers’ topic.
The approach though out the book is extremely formulaic, the examples chosen seemingly dictated by the theme of each chapter, and so omitting some of the more important (to me) and interesting crises; around half of the content seemingly arising from an earlier paper: “A Crash Course on the Euro Crisis”.
I would have like to hear about the demise of Long-Term Capital Management in 1998, often over-looked given the events of the dotcom bubble which followed on soon after, AND no mention of tulips from Amsterdam and the mania for them in the 17th century which may be considered to set the economic balls a rolling.
As would be expected of such seasoned economists the writing is clear and very concise, there is just not enough of it to be satisfying. If the book were at least 50% longer, doubling the length of the theme chapters (§2 - §11), it would have more to recommend it. The final part, consists of a single chapter (§12) comprises six brief paragraphs and a mere 1.5 pages, gives the impression the the authors had run out of steam at this point.
There is a lot of detail in some of the earlier parts of the ten sections but these are often let down with the examples which subsequently followed.
As to its intended audience it does not appear to me to meet many of its stated aims. It may well prove to be of use to the teacher in incorporating into some lectures in order to encourage discussion and as a basis in supplementing for more detailed texts.
So it works for me as a coffee-table book; one to read on the tube when in London, or the metro or subway, when not.
For the rest of those who would wish to read a more comprehensive book I would consider looking elsewhere. One that grabbed my attention was “A History of Financial Crises” by Cihan Bilginsoy, part of the “Economics as Social Theory” series, which itself deals with more crashes and lists them, more pleasingly, chronologically - in fact it does begin with Dutch Tulip mania and finally ending with the subprime housing meltdown of the 2000’s.
Also there are the classic “Manias, Panics and Crashes” by Kindleberger and Aliber and a“Dynamic Macroeconomic Theory” by Thomas Sargent which provides a more rigorous approach to the modelling of economic crises. Plus from a viewpoint of recent financial histrionics, I recommend the book “Crashed” by Adam Tooze, which starts with the sub-prime debacle and concludes, for now at least, with Trump-conomics.
In summary “A Crash Course on Crises” is not a bad book, rather like the curator’s egg it is good in parts, but not in all. Given a little more time and effort it would be a much better one.
November 11, 2025
Crashing Through Crises
A Book Review of “A Crash Course on Crises”
I rate the book a 3/5 stars. “A Crash Course on Crises” falls short of its aim of a digestible read that can supplement general Economics text books to help the readers understand the causes and stages of financial crises. While the book summarizes key concepts and provides interesting examples, aspects were not clear, requiring revision and research to understand. In addition, the impact on the reader is forgettable. There is no narrative connecting the book together and the “stories” covered in the examples are not detailed enough to fully engage the reader. The book is split into three main parts covering the run up, triggers and amplifiers, and recovery of crises. Each area presents the economic theory involved, a graph showing relevant data, and then concrete examples from history along with analysis on implications.
Section 1 focused on bubbles, misallocation of investment and balance sheet imbalances that lead up to crashes. For bubbles, the explanation of a “Keynesian Beauty Context” was helpful where there are changes in market fundamentals either through a new technology, change in regulation or change in expected growth that causes an initial level of exuberance. This exuberance can be self perpetuating as additional investors pile on to the original growth and ends when more sophisticated investors pull out to preserve their gains, resulting in a rapid decrease in asset prices. While this was the most clear part of the section for me, it would have benefited from a discussion on implications for the share of retail investors increasing in recent years. Based on the model shared in the book, one would expect this to cause longer duration and higher valuation bubbles a significant concern. The second and third parts cover misallocation of investment and how balance sheets are structured. These were less clear to me, I understand they involve market distortions where enthusiasm can cause investment to flow into popular areas at the expense of others where the fundamentals are actually stronger. I also understand balance sheets have shifted in modern financial institutions to shift from deposit backed investment to packaged assets such as mortgaged back securities which has increased the risk in the system. These areas would have benefited from a more simple explanation and greater connection with the first part.
Section 2 focused on what are the things that trigger and amplify crashes. The first two parts cover what happens when asset prices drop. If banks have borrowed money to make investments, the value of investments can be lower than the amount the banks have borrowed to make them, creating instability. When this happens, banks often have to sell assets when the prices are at the lowest to cover losses and provide for depositors. If this is happening more broadly, it can minimize the smoothing function of the market where one would expect lower priced assets to produce an inflow of capital to take advantage of the “good deal”. This can also be compounded by a mismatch between the time horizons of lending or investments and the payoff. Often financial institutions are using short term capital to make long term investments which can cause liquidity shocks when short term assets are required. There also is interconnectivity between what are determined as “safe assets” backing riskier investments such as government bonds. During crisis, the impact on the economy can lead to decreased tax receipts which can reduce confidence in government bonds and make the assets that were supposed to be safe seem risky, reducing confidence in the overall system. The examples in this section stood out for their clarity. The graph depicting the multiplier effect of leverage in banks was particularly effective where it shows the market failure of increased purchases of assets as banks are forced to continue to sell assets to cover loans. Similarly the graph depicting lending between German banks during the run on the German Banking System in 1931 was effective in showing the deterioration of the lending relationships between banks.
Section 3 covers the policies and actions governments can take to navigate crises. Taken together, the section summarizes common policy responses to crisis. Within the economy, the central bank can provide liquidity through favorable lending to financial institutions, interest rates can be lowered and government spending can be used to increase investment and consumption. Investment is increased by looser credit policy which encourages companies to be more willing to pursue projects. Consumption is increased as often government spending can increase employment and confidence which increases spending through supported wages and reducing consumers initial inclination to increase savings following a crisis. With an open economy there is another dynamic where exchange rates interact with imports, exports and can interact with government debt. When interest rates are lowered, the currency typically reduces compared to other currencies which can increase the price of imports and reduce the price of exports. This effect can help stabilize the economy by increasing consumption and production within the economy.
The challenge with this effect is if government debt is denominated in a different currency, this can reduce the value of government income and make paying down debt more difficult. The most effective example cited in the section goes back to Japan where a graph depicts the novel monetary policy of the central bank through quantitative easing. It would be interesting to see an update on this section with recent developments in Japan where there is now inflation and where asset prices have recovered from their lows following the crisis in the 1980’s. Identifying the cause of what went wrong in this scenario and if current central bank policy could prevent long term deflation would be useful for policy makers today.
Overall the authors had a great idea and with improvements on the execution, a more cohesive narrative and greater detail in the examples, the book could have earned an excellent rating.
A Book Review of “A Crash Course on Crises”
I rate the book a 3/5 stars. “A Crash Course on Crises” falls short of its aim of a digestible read that can supplement general Economics text books to help the readers understand the causes and stages of financial crises. While the book summarizes key concepts and provides interesting examples, aspects were not clear, requiring revision and research to understand. In addition, the impact on the reader is forgettable. There is no narrative connecting the book together and the “stories” covered in the examples are not detailed enough to fully engage the reader. The book is split into three main parts covering the run up, triggers and amplifiers, and recovery of crises. Each area presents the economic theory involved, a graph showing relevant data, and then concrete examples from history along with analysis on implications.
Section 1 focused on bubbles, misallocation of investment and balance sheet imbalances that lead up to crashes. For bubbles, the explanation of a “Keynesian Beauty Context” was helpful where there are changes in market fundamentals either through a new technology, change in regulation or change in expected growth that causes an initial level of exuberance. This exuberance can be self perpetuating as additional investors pile on to the original growth and ends when more sophisticated investors pull out to preserve their gains, resulting in a rapid decrease in asset prices. While this was the most clear part of the section for me, it would have benefited from a discussion on implications for the share of retail investors increasing in recent years. Based on the model shared in the book, one would expect this to cause longer duration and higher valuation bubbles a significant concern. The second and third parts cover misallocation of investment and how balance sheets are structured. These were less clear to me, I understand they involve market distortions where enthusiasm can cause investment to flow into popular areas at the expense of others where the fundamentals are actually stronger. I also understand balance sheets have shifted in modern financial institutions to shift from deposit backed investment to packaged assets such as mortgaged back securities which has increased the risk in the system. These areas would have benefited from a more simple explanation and greater connection with the first part.
Section 2 focused on what are the things that trigger and amplify crashes. The first two parts cover what happens when asset prices drop. If banks have borrowed money to make investments, the value of investments can be lower than the amount the banks have borrowed to make them, creating instability. When this happens, banks often have to sell assets when the prices are at the lowest to cover losses and provide for depositors. If this is happening more broadly, it can minimize the smoothing function of the market where one would expect lower priced assets to produce an inflow of capital to take advantage of the “good deal”. This can also be compounded by a mismatch between the time horizons of lending or investments and the payoff. Often financial institutions are using short term capital to make long term investments which can cause liquidity shocks when short term assets are required. There also is interconnectivity between what are determined as “safe assets” backing riskier investments such as government bonds. During crisis, the impact on the economy can lead to decreased tax receipts which can reduce confidence in government bonds and make the assets that were supposed to be safe seem risky, reducing confidence in the overall system. The examples in this section stood out for their clarity. The graph depicting the multiplier effect of leverage in banks was particularly effective where it shows the market failure of increased purchases of assets as banks are forced to continue to sell assets to cover loans. Similarly the graph depicting lending between German banks during the run on the German Banking System in 1931 was effective in showing the deterioration of the lending relationships between banks.
Section 3 covers the policies and actions governments can take to navigate crises. Taken together, the section summarizes common policy responses to crisis. Within the economy, the central bank can provide liquidity through favorable lending to financial institutions, interest rates can be lowered and government spending can be used to increase investment and consumption. Investment is increased by looser credit policy which encourages companies to be more willing to pursue projects. Consumption is increased as often government spending can increase employment and confidence which increases spending through supported wages and reducing consumers initial inclination to increase savings following a crisis. With an open economy there is another dynamic where exchange rates interact with imports, exports and can interact with government debt. When interest rates are lowered, the currency typically reduces compared to other currencies which can increase the price of imports and reduce the price of exports. This effect can help stabilize the economy by increasing consumption and production within the economy.
The challenge with this effect is if government debt is denominated in a different currency, this can reduce the value of government income and make paying down debt more difficult. The most effective example cited in the section goes back to Japan where a graph depicts the novel monetary policy of the central bank through quantitative easing. It would be interesting to see an update on this section with recent developments in Japan where there is now inflation and where asset prices have recovered from their lows following the crisis in the 1980’s. Identifying the cause of what went wrong in this scenario and if current central bank policy could prevent long term deflation would be useful for policy makers today.
Overall the authors had a great idea and with improvements on the execution, a more cohesive narrative and greater detail in the examples, the book could have earned an excellent rating.
August 19, 2023
An extremely concise guide and intro to the modern area of research into macro-financial crises that developed around and after the financial crisis of 2008 and the subsequent Euro crisis, excerpted and simplified down to the undergraduate level. The chapters were developed, and I suspect would work best as, supplemental lectures for an intermediate or advanced undergraduate macroeconomics class, to bring some of the models and ideas from this literature into contemporary teaching. In cases where the key idea can be explained diagrammatically, it works quite well, as in the chapters on interest and exchange rates, but in some of the chapters the simplification becomes so vague as to render the modeling unhelpful. A few chapters are in-between: the chapter on bubbles offers a simplified model in between a classic Keynesian beauty contest and (perhaps unsurprisingly, given the author) the Abreu-Brunnermeier formalization of the "greater fool" theory that probably gives a more empirically relevant perspective than, for example, the transversality violation approach seen in much of the academic literature, but in so doing slightly hand-waves at the mechanics of the process. Along with these models or pieces of models, the narrative components offer context and add up to a reasonable if somewhat disjointed history of some of the major crises of the past two decades.
It is clear how much effort was put into crafting these capsule summaries and descriptions; I often found that the precise wording of sentences was tailored to convey a concept concisely while making sure not to omit particular points of fact or theoretical concern in the academic literature. My sense is that this approach is not likely to convey these nuances to the typical undergraduate reader, who will mostly perceive it as a slightly stilted writing style and escape with just a vague sense of the main points intact. I understand the academic compulsion for accuracy and completeness combined with the constraints of undergraduate class schedules that leads to this kind of oblique prose, but I do worry about the kind of misconceptions that can arise in non-specialist readers from hiding away details on potentially controversial topics in an awkward sentence construction. For the most part these references are kept to fairly mainstream ideas among academic specialists, but an introductory reader wouldn't have the paper trail to make their own evaluations.
Overall, I think this book is likely to be very good for the use for which it was created, as a selection of supplementary lectures from which one can pick and choose to add to a class. As a whole, it needs some additional filler to hang together, so a reader looking to get into the topic should probably use it as a secondary rather than a primary book, perhaps along with some of the more narrative accounts of recent crises. Among other things, this would make clear the interconnections between the ideas described in the separate chapters, as well as the diversity of crises, which tend not to follow a single structure but instead incorporate distinct subsets of the mechanisms described.
It is clear how much effort was put into crafting these capsule summaries and descriptions; I often found that the precise wording of sentences was tailored to convey a concept concisely while making sure not to omit particular points of fact or theoretical concern in the academic literature. My sense is that this approach is not likely to convey these nuances to the typical undergraduate reader, who will mostly perceive it as a slightly stilted writing style and escape with just a vague sense of the main points intact. I understand the academic compulsion for accuracy and completeness combined with the constraints of undergraduate class schedules that leads to this kind of oblique prose, but I do worry about the kind of misconceptions that can arise in non-specialist readers from hiding away details on potentially controversial topics in an awkward sentence construction. For the most part these references are kept to fairly mainstream ideas among academic specialists, but an introductory reader wouldn't have the paper trail to make their own evaluations.
Overall, I think this book is likely to be very good for the use for which it was created, as a selection of supplementary lectures from which one can pick and choose to add to a class. As a whole, it needs some additional filler to hang together, so a reader looking to get into the topic should probably use it as a secondary rather than a primary book, perhaps along with some of the more narrative accounts of recent crises. Among other things, this would make clear the interconnections between the ideas described in the separate chapters, as well as the diversity of crises, which tend not to follow a single structure but instead incorporate distinct subsets of the mechanisms described.
June 28, 2023
+ A major complaint about the field of macroeconomics in the slipstream of the 2008 financial crisis was that it hadn't paid enough attention to the role of financial markets in macroeconomics. This book tries to fill that gap with 10 or so short, largely independent chapters each covering a particular idea/graph/development both theoretically and with some nice (and sometimes very recent) case studies.
- It's quite dry and technical. I think it's quite optimistic to think this is a book for 'policymakers and members of the informed public'. Quite a lot of macroeconomic background is assumed. Additionally, in my e-version (straight from the publisher so I had to use their proprietary ereader-app) the graphs were too small to be of use and there wasn't a clear way to get them bigger; no zoom or anything. This really hindered me in getting the most out of the book. It was actually quite frustrating.
- It's quite dry and technical. I think it's quite optimistic to think this is a book for 'policymakers and members of the informed public'. Quite a lot of macroeconomic background is assumed. Additionally, in my e-version (straight from the publisher so I had to use their proprietary ereader-app) the graphs were too small to be of use and there wasn't a clear way to get them bigger; no zoom or anything. This really hindered me in getting the most out of the book. It was actually quite frustrating.
January 8, 2024
The authors are accomplished economists, whose knowledge in this subject area is unquestioned. As a result, their presentations and the quick-fire graphical models employed to support their conclusions are sound and understood, depending on the reader. Hence, my rating of three stars, which reflects my consistent criticism of books of this kind, namely for the experienced reader in the field there is no reason to read the book ( not enough substance to provoke a debate) and for the inexperienced reader they will finish the book having turned all the pages without really having understood what they have read. There are many more substantive books on the topic area at the multiple knowledge levels that warrant space on your book shelf.
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July 20, 2024
Reis and Brunnermeier are not lying when they say in the preface that the book is self-contained—to the point, let it be said, where the text could benefit from a little more effort in elucidation. Nonetheless, this makes the book succinct, quick, and to the point, which, in addition to introducing ten concepts from macrofinance, encourages the reader's curiosity in discovering what their intellect may feel hungry for. I'd love to see an extended edition of the book, but for the time being, it's a relatively friendly companion for undergraduates.
July 20, 2023
I expected something a bit deeper, or, at least, a richer set of references - while it is still too dense for the uninitiated. As such, quite hard to figure out the readership the authors had in mind.
December 11, 2023
Covers the common causes of economic crises and examples. The explanations (both written and mathematical) come off as a bit surface level and the book fails to go into enough detail to be considered insightful. Some of the examples are unique and not the stock situation for the crisis cause.
August 26, 2025
Some wisdom in here for sure, but very technical book. Only for those that love economic charts.
December 29, 2023
Highly readable theoretical exposition linking the study of macroeconomics and financial crises. Explains how macro-financial crises, such as what happened in the U.S. from 2008-2012, are different from, and more severe than, run-of-the-mill recessions. Highly relevant for the moment and presented in a very accessible, though still sophisticated, manner.
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