Financial Crisis

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Financial Crises: Explanations, Types, and Implications

Stijn Claessens and M. Ayhan Kose

© 2013 International Monetary Fund


IMF Working Paper Research Department Financial Crises: Explanations, Types, and Implications Prepared by Stijn Claessens and M. Ayhan Kose1

January 2013 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the shortand medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions. JEL Classification Numbers: E32, F44, G01, E5, E6, H12 Keywords: Sudden stops, debt crises, banking crises, currency crises, defaults, policy implications, financial restructuring, asset booms, credit booms, crises prediction. Author’s E-Mail Address:,


This paper is written for a forthcoming book, Financial...