Three branches of theories of financial crises

Itay Goldstein, Assaf Razin

Research output: Contribution to journalReview articlepeer-review

Abstract

In this monograph, we review three branches of theoretical literature on financial crises. The first deals with banking crises originating from coordination failures among bank creditors. The second deals with frictions in credit and interbank markets due to problems of moral hazard and adverse selection. The third deals with currency crises. We discuss the evolutions of these branches in the literature, and how they have been integrated recently to explain the turmoil in the world economy during 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.

Original languageEnglish
Pages (from-to)113-180
Number of pages68
JournalFoundations and Trends in Finance
Volume10
Issue number2
DOIs
StatePublished - 2015

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