Financial Crises: Review and Evidence

This paper presents a brief review of the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents the frequency and distribution of crises over time and across countries. Third, what are the real and financial sector implications of crises? The paper briefly reviews the adverse effects of crises for the real economy and financial sector.