Crises have been a feature of the financial landscape for hundreds of years. They often appear with little warning, as the sub-prime mortgage crisis of 2007 and the Asian crisis of 1997-1998 illustrate. It's not always clear what causes crises, whether they can be avoided and how their impact can be reduced. A recent book, titled Understanding Financial Crises (Oxford University Press), by Wharton finance professor Franklin Allen and Douglas Gale, a professor of economics at New York University, tackles this subject from a number of different angles. The authors review the history of financial crises in addition to offering their own approach to examining the underlying causes. Allen and Gale also discuss asset price volatility, the interaction between banks and markets, bubbles and financial contagion, among other topics. Below is an excerpt from the book.
What happened in Asia in 1997? Countries such as South Korea, Thailand, Indonesia, Singapore and Hong Kong whose economies had previously been the envy of the world experienced crises. Banks and other financial intermediaries were put under great strain and in many cases collapsed. Stock markets and currencies plunged. Their real economies were severely affected and their GDPs fell significantly. What were the causes of these dramatic events?
See full Article.
Posts
