Given no generally accepted framework for financial stability, policymakers in developing Asia need to manage, not avoid, financial deepening. This paper supports Asian policymakers' judgement through analysis of the recent events in the United States and Europe and of earlier crisis episodes,...

This paper studies whether policymakers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. This question is examined in a relatively simple dynamic stochastic general equilibrium model in which crises are endogenous events induced by the presence of...