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This lecture series is based on Brunnermeier and Sannikov’s research papers “The I Theory of Money” and “Redistributive Monetary Policy”
Part 1 explains how (i) banks create (inside) money, (ii) banks' equity provides a cushion against default/credit risk, (iii) liquid safe asset holdings protect the bank against liquidity/run risk.
Part 2 explains debt run-ups and how endogenous risk arises from the (i) the Liquidity Spiral, and (ii) the Disinflationary Spiral. It also defines the (iii) Paradox of Prudence, it's relation to Keynes' Paradox of Thrift. These amplifications lead to endogenous (self-generated) systemic risk.
Part 3 focuses on monetary policy. It first contrasts the money and the credit view. Monetary policy redistributes wealth, ideally to the sector which is balance sheet constraint.
Part 4 introduces (i) three stability concepts, (ii) three dominance concepts, (iii) game of chicken between fiscal and monetary authorities, and (iv) diabolic (doom) loop between banking and sovereign risk.
Markus K. Brunnermeier
Featuring Markus K. Brunnermeier, Sven Giegold, George Soros, Giulio Tremonti, and Yanis Varoufakis
Apr 12, 2012