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The Anatomy of Financial Crises

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  • Barry Eichengreen
  • Richard Portes

Abstract

A financial crisis is a disturbance to financial markets. associated typically with falling asset prices and insolvency among debtors and intermediaries, which spreads through the financial system, disrupting the market’s capacity to allocate capital. In this paper we analyze the generation and propagation of financial crises in an international setting. We provide a perspective on the danger of a serious disruption to the global financial system by comparing the last full-fledged financial crisis - that of the 1930s - with conditions prevailing today. Our definition of a financial crisis implies a distinction between generalized financial crises on the one hand and isolated bank failures, debt defaults and foreign-exchange market disturbances on the other. We represent this distinction in three sets of linkages: between debt defaults; and between exchange-market disturbances and bank failures. In both the 1930s and 1980s, the institutional environment was drastically altered by rapid change in foreign exchange markets, in international capital markets, and in the structure of domestic banking systems. Our comparative analysis underscores the critical role played by institutional arrangements in financial markets as a determinant of the system's vulnerability to destabilizing shocks.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2126.

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Date of creation: Aug 1989
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Handle: RePEc:nbr:nberwo:2126

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Cited by:
  1. Mauricio Avella Gómez, 2006. "El Acceso De Colombia Al Financiamiento Externo Durante Durante," BORRADORES DE ECONOMIA 002451, BANCO DE LA REPÚBLICA.
  2. Barry Eichengreen and Richard Portes., 1989. "Dealing with Debt: The 1930s and the 1980s," Economics Working Papers 89-104, University of California at Berkeley.
  3. Lestano & Jacobs, Jan & Kuper, Gerard H., 2003. "Indicators of financial crises do work! : an early-warning system for six Asian countries," CCSO Working Papers 200313, University of Groningen, CCSO Centre for Economic Research.
  4. Raphael H. Solomon, 2003. "Anatomy of a Twin Crisis," Working Papers 03-41, Bank of Canada.
  5. Mauricio Avella Gómez, 2006. "El Acceso De Colombia Al Financiamiento Externo," BORRADORES DE ECONOMIA 002450, BANCO DE LA REPÚBLICA.
  6. Barry Eichengreen, 1989. "Hegemonic Stability Theories of the International Monetary System," NBER Working Papers 2193, National Bureau of Economic Research, Inc.
  7. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
  8. Barry Eichengreen, 1990. "Resolving Debt Crises: An Historical Perspective," NBER Working Papers 2555, National Bureau of Economic Research, Inc.
  9. Carolyn Currie, 2003. "Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises," Working Paper Series 132, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  10. Portes, Richard, 2001. "The European Contribution to International Financial Stability," CEPR Discussion Papers 2956, C.E.P.R. Discussion Papers.
  11. Donges, Juergen B., 1987. "Trade protectionism and international monetary order: Recalling the relevance of past experience," Kiel Working Papers 304, Kiel Institute for the World Economy.
  12. Michael D. Bordo & Bruce Mizrach & Anna J. Schwartz, 1995. "Real Versus Pseudo-International Systemic Risk: Some Lessons from History," NBER Working Papers 5371, National Bureau of Economic Research, Inc.
  13. William C. Hunter & David Marshall, 1999. "Thoughts on financial derivatives, systematic risk, and central banking: a review of some recent developments," Working Paper Series WP-99-20, Federal Reserve Bank of Chicago.

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