Risk and Liquidity

This book presents the Clarendon Lectures in Finance by one of the leading exponents of financial booms and crises. Hyun Song Shin's work has shed light on the recent global financial crisis and he has been a central figure in the policy debates. The paradox of the global financial crisis is that it erupted in an era when risk management was at the core of the management of the most sophisticated financial institutions. This book explainswhy. The severity of the crisis is explained by financial development that put marketable assets at the heart of the financial system, and the increased sophistication of financial institutions that heldand traded the assets. Step by step, the lectures build an analytical framework that take the reader through the economics behind the fluctuations in the price of risk and the boom-bust dynamics that follow. The book examines the role played by market-to-market accounting rules and securitisation in amplifying the crisis, and draws lessons for financial architecture, financial regulation and monetary policy.This book will be of interest to all serious students ofeconomics and finance who want to delve beneath the outward manifestations to grasp the underlying dynamics of the boom-bust cycle in a modern financial system - a system where banking and capital marketdevelopments have become inseparable.

“In the Great Recession, the world has looked for leading economists to offer a new and better understanding of macroeconomic instability, as Keynes did in the Great Depression. In this book, Hyun Song Shin delivers what was needed. Step by step, he develops a new comprehensive understanding of how macroeconomic booms and busts can be derived from microeconomic forces in the banking system. This book should be recognized as a major contribution to macroeconomictheory.”

In the Great Recession, the world has looked for leading economists to offer a new and better understanding of macroeconomic instability, as Keynes did in the Great Depression. In this book, Hyun Song Shin delivers what was needed. Step by step, he develops a new comprehensive understanding of how macroeconomic booms and busts can be derived from microeconomic forces in the banking system. This book should be recognized as a major contribution to macroeconomic theory. Roger Myerson., Nobel Laureate in Economics 2007, Glen A. Lloyd Distinguished Service Professor Department of Economics, University of Chicago
This book is a "must-read" for students, scholars and policy makers who would like to decipher the subprime crisis. Hyun Shin has an extraordinary talent for designing simple models that explain complicated phenomena. Jean Charles Rochet, Professor of Economics, Toulouse School of Economics (TSE)
Hyun Song Shin is one of the leading scholars on financial stability in the world. This book provides a very accessible summary of this work. It is essential reading for all academics and practitioners interested in financial crises. Franklin Allen, Nippon Life Professor of Finance and Economics, The Wharton School of the University of Pennsylvania and author of Understanding Financial Crises (OUP)

Before joining Princeton in 2006, Hyun Song Shin was Professor of Finance at the London School of Economics. He is a leading exponent of financial booms and crises, and has been a leading figure in the policy debates during the financial crisis. He has written extensively for both an academic and practitioner audience on financial risk, financial regulation and monetary policy. He has served as editor or editorial board member of several scholarly journals, andhas served in an advisory capacity to central banks and policy organizations on financial stability issues. He is a fellow of the Econometric Society and of the British Academy.

This book presents the Clarendon Lectures in Finance by one of the leading exponents of financial booms and crises. Hyun Song Shin's work has shed light on the recent global financial crisis and he has been a central figure in the policy debates. The paradox of the global financial crisis is that it erupted in an era when risk management was at the core of the management of the most sophisticated financial institutions. This book explains why. The severity of the crisis is explained by financial development that put marketable assets at the heart of the financial system, and the increased sophistication of financial institutions that held and traded the assets. Step by step, the lectures build an analytical framework that take the reader through the economics behind the fluctuations in the price of risk and the boom-bust dynamics that follow. The book examines the role played by market-to-market accounting rules and securitisation in amplifying the crisis, and draws lessons for financial architecture, financial regulation and monetary policy.This book will be of interest to all serious students of economics and finance who want to delve beneath the outward manifestations to grasp the underlying dynamics of the boom-bust cycle in a modern financial system - a system where banking and capital market developments have become inseparable.

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