Theories of Financial Crises

Abstract

A remarkable increase in financial instability has characterized the past three decades. All the main continents have been affected by crises, with very severe effects on the real economy. In the 1980s, the instability shocked many nations in Latin America and eventually impacted on Japan, East Asia and Russia in the 1990s. A great financial crisis recently hit the United States and soon moved to Europe, Asia and the rest of the world. The depth of the latest crisis and the number of involved countries have revived interest, which indeed has never disappeared, in the causes of the financial instability and in prevention policies. In this first chapter we outline the theories of financial crises.