This lecture outlines an asymmetric information theory of financial instability which describes the fundamental forces which harm both the financial sector and economic activity. This asymmetric information framework is then used to demonstrate that although international capital movements and...

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...