Understanding Financial Crises: A Nontechnical Approach


This paper deals with currency and banking crises, and the possible causes behind these events, in order to recommend a set of warning or leading indicators, policy actions, and structural reforms that are necessary to prevent or to alert policymakers of the eventuality of a crisis. In doing so, it first reviews the literature on currency crises, beginning with the so–called "first generation" models of balance–of payments crises, whose pioneer wrote his influential paper few years before the debt crises erupted in the developing world (Krugman 1979).