Financial crises can happen for a variety of reasons: (a) nobody really understands what is going on (the collective cognition paradigm); (b) some understand better than others and take advantage of their knowledge (the asymmetric information paradigm); (c) everybody understands, but crises are...

This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposed -- information asymmetry, enforcement, collective action, and collective cognition. Financial development is shaped by the efforts...

The global financial crisis brought public guarantees to the forefront of the policy debate. Based on a review of the theoretical foundations of public guarantees, this paper concludes that the commonly used justifications for public guarantees based solely on agency frictions (such as adverse...

The authors analyze the Washington Consensus, which at its original formulation reflected views not only from Washington, but also from Latin America. Tracing the life of the Consensus from a Latin American perspective in terms of evolving economic development paradigms, they document the...

The Subprime crisis largely resulted from failures to internalize systemic risk evenly across financial intermediaries and recognize the implications of Knightian uncertainty and mood swings. A successful reform of prudential regulation will need to integrate more harmoniously the three...

This paper studies how portfolios with a global investment scope are allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly limited number of stocks, around 100. The number of...

This paper studies the cross-country incidence of the 2008-2009 global crisis and documents a structural break in the way emerging economies responded to the global shock. Contrary to popular perceptions, emerging market economies suffered growth collapses comparable, or even larger, to those...

Pension funds have been expected to invest in a wide range of securities and provide liquidity to domestic capital markets since they are the most sophisticated investors, with plenty of resources to gather private information and manage portfolios professionally. However, by analyzing unique,...

This paper analyzes the joint behavior of international capital flows by foreign and domestic agents -- gross capital flows -- over the business cycle and during financial crises. The authors show that gross capital flows are very large and volatile, especially relative to net capital flows....

Emerging economies have tried to promote long-term debt because it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. The authors analyze monthly...