Three Branches of Theories of Financial Crises

79 Pages Posted: 5 Jan 2013 Last revised: 7 Jul 2024

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ; National Bureau of Economic Research (NBER)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: January 2013

Abstract

In this paper, we review three branches of theoretical literature on financial crises. The first one deals with banking crises originating from coordination failures among bank creditors. The second one deals with frictions in credit and interbank markets due to problems of moral hazard and adverse selection. The third one deals with currency crises. We discuss the evolutions of these branches of the literature and how they have been integrated recently to explain the turmoil in the world economy around the East Asian Crises and in the last few years. We discuss the relation of the models to the empirical evidence and their ability to guide policies to avoid or mitigate future crises.

Suggested Citation

Goldstein, Itay and Razin, Assaf, Three Branches of Theories of Financial Crises (January 2013). NBER Working Paper No. w18670, Available at SSRN: https://ssrn.com/abstract=2196735

Itay Goldstein (Contact Author)

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Assaf Razin

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