Financial Crises: Theory and Evidence
Financial crises have occurred for many centuries. They are often preceded by a credit boom and a rise in real estate and other asset prices, as in the current crisis. They are also often associated with severe disruption in the real economy. This paper surveys the theoretical and empirical literature on crises. The first explanation of banking crises is that they are a panic. The second is that they are part of the business cycle. Modeling crises as a global game allows the two to be unified. With all the liquidity problems in interbank markets that have occurred during the current crisis, there is a growing literature on this topic. Perhaps the most serious market failure associated with crises is contagion, and there are many papers on this important topic. The relationship between asset price bubbles, particularly in real estate, and crises is discussed at length.
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Volume (Year): 1 (2009)
Issue (Month): 1 (November)
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