The procyclicality of financial systems has received an increasing amount of attention from policymakers, academics, and international organizations in recent years. This heightened interest stems from a combination of the ongoing globalization of finance, the role of the financial sector in...

The onset of financial instability in August 2007, which quickly spread across the world, raises a number of questions for policy makers. First, what are the roots of the crisis? Many factors have been emphasized in the debate, including the opacity of complex financial products; the excessive...