GIVE NOW about ocw help & faqs contact us
14.454 | Spring 2026 | Graduate

# Economic Crises

The required readings are indicated with a star symbol (*). The remaining readings include useful references, which might be covered briefly during the course.

### Lecture 1: Introduction

- Luttrell, D., T. Atkinson, and H. Rosenblum, “Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath,” Dallas Fed Economic Letter 8(7), September 2013.
- Allen, F., E. Carletti, J.P. Krahnen, and M. Tyrell, “An Introduction to Liquidity and Crises,” in Liquidity and Crises, (Eds.) (same authors), Oxford University Press, 3–32, 2011.
- Ball, L.M., “The Fed and Lehman Brothers,” Cambridge University Press, June 2018.
- Caballero, R.J., “Macroeconomics After the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome.” Journal of Economic Perspectives, 85–102, Fall 2010.
- Blanchard, O.J., G. Dell’Ariccia, and P. Mauro, “Rethinking Macroeconomic Policy,” Journal of Money, Credit and Banking 42(s1), 199–215, September 2010.
- Caballero, R.J., “Crisis and Reform: Managing Systemic Risk” (PDF), Rivista di Politica Economica 99(4), 9–64, October-December 2009.
- Calomiris, Ch.W., and M.S. Jaremiski, “The Puzzling Persistence of Financial Crises,” NBER Working Paper 32212, March 2024.

### Lecture 2: Collateral and Amplification

- * Bernanke, B., and M. Gertler, “Agency Costs, Net Worth, and Business Fluctuations” (PDF), American Economic Review 79(1), 14–31, March 1989.
- * Kiyotaki, N., and J. Moore, “Credit Cycles,” Journal of Political Economy 105(2), 211–248, April 1997.
- Mian, A., and A. Sufi, “What Explains the 2007-2009 Drop in Employment?,” Econometrica 82(6), 2197–2223, November 2014.
- Greenwald, B.C., and J.E. Stiglitz, “Financial Market Imperfections and Business Cycles,” Quarterly Journal of Economics 108(1), 77–114, February 1993.
- Dixit, A., “Whither Greenwald-Stiglitz?" Presentation at Joseph Stiglitz’s 60th birthday conference, Columbia University, October 24, 2003.
- Tang, K., and H. Zhu, “Commodities as Collateral,” Review of Financial Studies 29(8), 2110–2160, August 2016.
- Brunnermeier, M.K., and Y. Sannikov, “A Macroeconomic Model with a Financial Sector,” American Economic Review 104(2), 379–421, February 2014.
- Krishnamurthy, A., “Collateral Constraints and Its Amplification Mechanism,” Journal of Economic Theory 111(2), 277–292, August 2003.

### Lecture 3: The Credit Crunch

- * Holmstrom, B., and J. Tirole, “Financial Intermediation, Loanable Funds, and the Real Sector,” Quarterly Journal of Economics 112(3), 663–691, August 1997.
- Kashyap, A., and J. Stein, “Monetary Policy and Bank Lending” (PDF), in Monetary Policy, (Ed.) N.G. Mankiw, NBER, 221–262, 1994.
- Hanson, S., and J. Stein, “Monetary Policy and Long-Term Real Rates,” Journal of Financial Economics 115(3), 55–109, March 2015.
- Bernanke, B., and A. Blinder, “Credit, Money, and Aggregate Demand,” American Economic Review 78(2), 435–439, May 1988.

### Lecture 4: Runs, Panics, and Contagion

- * Diamond, D.W., and P.H. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity” (PDF), Journal of Political Economy 91(3), 401–419, June 1983.
- * Allen, F., and D. Gale, “Financial Contagion,” Journal of Political Economy 108(1), 1–33, February 2000.
- Gorton, G.B., and A. Metrick, “Securitized Banking and the Run on Repo,” Journal of Financial Economics 104(3), 425–451, June 2012.
- Acharya, V., D. Gale, and T. Yorulmazer, “Rollover Risk and Market Freezes” (PDF), The Journal of Finance 66(4), 1177–1209, August 2011.
- Tirole, J., The Theory of Corporate Finance, Princeton University Press, 2006 (chapter 12).
- Caballero, R.J., “Sudden Financial Arrest” (PDF), IMF Economic Review, July 20, 2010.
- Adrian, T., and H.S. Shin, “Liquidity and Financial Contagion,” Financial Stability Review 11, Banque de France, 1–7, February 2008.
- Caballero, R.J., and A. Simsek, “Fire Sales in a Model of Complexity” (PDF), Journal of Finance 68(6), 2549–2587, August 2013.
- Brunnermeier, M., and L. Pedersen, “Market Liquidity and Funding Liquidity” (PDF), Review of Financial Studies, 22(6), 2201–2238, November 2008.
- Jacklin, C.J, “Demand Deposits, Trading Restrictions, and Risk Sharing,” in Contractual Arrangements for Intertemporal Trade, (Eds.) E.C. Prescott, N. Wallace, 1987.
- Metrick, A., and P. Schmelzing, “The March 2023 Bank Interventions in Long-Run Context—Silicon Valley Bank and Beyond,” NBER Working Paper 31066, March 2023.
- Cetorelli, N., M. Landoni, and L. Lu, “Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities,” Federal Reserve Bank of New York Staff Reports 1057, March 2023.

### Lecture 5: Bubbles and Credit Booms

- * Tirole, J., “Asset Bubbles and Overlapping Generations,” Econometrica 53(6), 1499–1528, November 1985.
- * Allen, F., and D. Gale, “Bubbles and Crises,” Economic Journal 460(110), 236–255, January 2000.
- * Abreu, D., and M. Brunnermeier, “Bubbles and Crashes,” Econometrica 71(1), 173–204, November 2003.
- * Harrison, J.M., and D.M. Kreps, “Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations,” Quarterly Journal of Economics 92(2), 323–336, May 1978.
- * Martin, A., and J. Ventura, “Managing Credit Bubbles” (PDF), Journal of the European Economic Association 14(3), 753–89, June 2016.
- *Lorenzoni, G., “Inefficient Credit Booms” (PDF), Review of Economic Studies 75(3), 809–833, July 2008.
- Woodford, M., “Stationary Sunspot Equilibria in a Finance-Constrained Economy,” Journal of Economic Theory 40(1), October 1986.
- Carvalho, V.M., A. Martin, and J. Ventura, “Understanding Bubbly Episodes,” American Economic Review: Papers & Proceedings 102(3), 95–100, May 2012.
- Kocherlakota, N., “Bursting Bubbles: Consequences and Cures” (PDF), Paper presented at the Macroeconomic and Policy Challenges Following Financial Meltdowns Conference, 2009.
- Davila, E., and A. Korinek, “Pecuniary Externalities in Economies with Financial Frictions,” Review of Economic Studies 85(1), 352–395, January 2018.
- Gourinchas, P.O., R. Valdes, and O. Landerretche, “Lending Booms: Latin America and the World” (PDF), Economia Journal 1(2), Spring 2001.
- Farhi, E., and J. Tirole, “Bubbly Liquidity,” Review of Economic Studies 79(2), 678–706, April 2012.
- Brunnermeier, M.K., and I. Schnabel, “Bubbles and Central Banks: Historical Perspectives,” in Central Banks at a Crossroads—What Can We Learn from History?, Cambridge University Press, 493–562, 2016.
- Jorda, O., M. Schularick, and A. Taylor, “Leveraged Bubbles,” Journal of Monetary Economics 76(S), S1–S20, December 2015.
- Brunnermeier, M.K., and M. Oehmke, “Bubbles, Financial Crises, and Systemic Risk,” in Handbook of the Economics of Finance, Vol 2, 2013.

### Lecture 6: Liquidity Traps and Leverage

- * Eggertsson, G.B., and P. Krugman, “Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach,” Quarterly Journal of Economics 127(3), 1469–1513, July 2012.
- * Korinek, A., and A. Simsek, “Liquidity Trap and Excessive Leverage,” American Economic Review 106(3): 699–738, March 2016.
- Kocherlakota, N., “Impact of a Land Price Fall When Labor Markets are Incomplete,” Federal Reserve Bank of Minneapolis, April 2013.
- Guerrieri, V., and G. Lorenzoni, “Credit Crises, Precautionary Savings, and the Liquidity Trap” (PDF), Quarterly Journal of Economics 132(3), 1427–1467, August 2017.
- Farhi, E., and I. Werning, “A Theory of Macroprudential Policies in the Presence of Nominal Rigidities” (PDF), Econometrica 84(5), September 2016.

### Lecture 7: Capital Flows and Financial Crises

- * Lorenzoni, G., “International Financial Crises,” Handbook of International Economics, Volume 4, (Eds.) G. Gopinath, E. Helpman, K. Rogoff, 689–740, 2014.
- * Caballero, R.J., and A. Krishnamurthy, “Bubbles and Capital Flow Volatility: Causes and Risk Management,” Journal of Monetary Economics 53(1), 35–53, January 2006.
- Bianchi, J., and G. Lorenzoni, “The Prudential Use of Capital Controls and Foreign Currency Reserves,” Handbook of International Economics, Volume 6, (Eds.) G. Gopinath, E. Helpman, K. Rogoff, 237–289, 2022.
- Bocola, L., and G. Lorenzoni, “Financial Crises, Dollarization, and Lending of Last Resort in Open Economies,” American Economic Review 110(8), 2524–2557, August 2020.
- Obstfeld, M., and K. Rogoff. Foundations of International Macroeconomics, Chapter 6, The MIT Press, Cambridge MA.
- Caballero, R.J., and A. Simsek, “A Model of Fickle Capital Flows and Retrenchment,” Journal of Political Economy 128(6), August 2020.
- Caballero, R.J., E. Farhi, and P.O. Gourinchas, “An Equilibrium Model of ‘Global Imbalances’ and Low Interest Rates,” American Economic Review 98(1), 358–393, March 2008.

## Course Info

### Instructor

- Prof. Ricardo Caballero

### Departments

- Economics

### As Taught In

Spring 2026

### Level

Graduate

### Topics

- Social Science
  - Economics
    - Financial Economics
    - Macroeconomics

### Learning Resource Types

notes Lecture Notes
assignment_turned_in Problem Set Solutions
assignment Problem Sets
auto_stories Readings

Browse Resources

# You are leaving MIT OpenCourseWare

Please be advised that external sites may have terms and conditions, including license rights, that differ from ours. MIT OCW is not responsible for any content on third party sites, nor does a link suggest an endorsement of those sites and/or their content.