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The Anatomy of Financial Crises

  • Eichengreen, Barry
  • Portes, Richard

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 bank failures; between exchange-market disturbances and 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 130.

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Date of creation: Sep 1986
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Handle: RePEc:cpr:ceprdp:130
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  1. Epstein, Gerald & Ferguson, Thomas, 1984. "Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal Reserve and the Open Market Operations of 1932," The Journal of Economic History, Cambridge University Press, vol. 44(04), pages 957-983, December.
  2. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1, June.
  3. Portes, Richard, 1986. "Finance, Trade and Development: Issues in Transatlantic Cooperation," CEPR Discussion Papers 100, C.E.P.R. Discussion Papers.
  4. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  5. Guttentag, Jack & Herring, Richard, 1984. " Credit Rationing and Financial Disorder," Journal of Finance, American Finance Association, vol. 39(5), pages 1359-82, December.
  6. Rogoff, Kenneth, 1985. "Can exchange rate predictability be achieved without monetary convergence? : Evidence from the EMS," European Economic Review, Elsevier, vol. 28(1-2), pages 93-115.
  7. Barry J. Eichengreen & Richard Portes, 1985. "Debt and Default in the 1930s: Causes and Consequences," NBER Working Papers 1772, National Bureau of Economic Research, Inc.
  8. Balogh, Thomas & Graham, Andrew, 1979. "The Transfer Problem Revisited: Analogies between the Reparations Payments of the 1920s and the Problems of the OPEC Surpluses," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(3), pages 183-91, August.
  9. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
  10. Andrew S. Carron & Benjamin M. Friedman, 1982. "Financial Crises: Recent Experience in U.S. and International Markets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(2), pages 395-422.
  11. Willem H. Buiter & Richard C. Marston, 1985. "Introduction to "International Economic Policy Coordination"," NBER Chapters, in: International Economic Policy Coordination, pages 1-7 National Bureau of Economic Research, Inc.
  12. Eichengreen, Barry & Wyplosz, Charles, 1986. "The Economic Consequences of the Franc Poincare," CEPR Discussion Papers 136, C.E.P.R. Discussion Papers.
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