<span style="font-size: 9.5pt"><span style="font-size: 9.5pt">This work provides a framework to analyze the role of financial development as</span><span style="font-size: 9.5pt">a source of endogenous instability in emerging economies subject to moral hazard</span><span style="font-size: 9.5pt">problems. We study a piecewise linear dynamic model describing a small open economy</span><span style="font-size: 9.5pt">with a tradable good produced by internationally mobile...</span></span>