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...

We study the output costs of 40 systemic banking crises since 1980. Most, but not all, crises in our sample coincide with a sharp contraction in output from which it took several years to recover. Our main findings are as follows. First, the current financial crisis is unlike any others in terms...

Over the four years beginning in the summer of 1929, financial markets, labor markets and goods markets all virtually ceased to function. Throughout this, the government policymaking apparatus seemed helpless. Since the end of the Great Depression, macroeconomists have labored diligently in an...

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...