This paper explains the puzzle of how a developing economy can shift from a path of reasonable growth before a financial crisis, as in Mexico in 1994, to a sharp decline in economic activity after a crisis occurs. It does so by outlining an asymmetric information framework for analyzing banking...

In recent years the possibility of an international financial crisis has increased because of greater liquidity of international financial markets, an increase in corporate indebtedness and the decline of the banking industry. Using an asymmetric information analysis, this paper outlines what...

Liquidity shocks transmitted through interbank connections contributed to bank distress during the Great Depression. New data on interbank connections reveal that banks were much more likely to close when their correspondents closed. Further, after the Federal Reserve was established, banks'...

Studies of pre-Depression banking argue that banking panics resulted from depositor confusion about the incidence of shocks, and that interbank cooperation avoided unwarranted failures. This paper uses individual bank data to address the question of whether solvent Chicago banks failed during...

This paper examines the nature of financial crises from a historical perspective using the new and burgeoning literature on asymmetric information and financial structure. After describing how this literature helps to understand the nature of financial crises, the paper focuses on a historical...

This paper outlines a set of financial policies that can help make financial crises less likely in emerging market countries. To justify these policies, the paper first explains what a financial crisis is, the factors that promote a financial crisis and the dynamics of a financial crisis. It...

This paper explores the link between financial conditions and economic activity. We first review existing measures, including both single indicators and composite financial conditions indexes (FCIs). We then build a new FCI that features three key innovations. First, besides interest rates and...