Financial Crises
22 Pages Posted: 11 May 2018
There are 2 versions of this paper
Financial Crises
Date Written: January 30, 2018
Abstract
Financial crises are runs on short-term debt. Whatever its form, short-term debt is an inherent feature of a market economy. A run is an information event in which holders of short-term debt no longer want to lend to banks because they receive information leading them to suspect the value of the backing for the debt, so they run. When runs are system-wide they threaten the solvency of the entire financial system requiring either public or private intervention. Runs, which most likely follow credit booms, are integral parts of movements in the macro-economy.
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