Financial Crises, Safety Nets and Regulation

FINANCIAL STRUCTURE, SAVING AND GROWTH: SAFETY NETS, REGULATION, AND RISK REDUCTION IN GLOBAL FINANCIAL MARKETS By

Financial Structure, Saving and Growth: Safety Nets, Regulation, and Risk Reduction in Global Financial Markets

Financial Crises and Political Crises∗

The simultaneous determination of financial default and political crises is studied in an open economy model. Political crises accompany default in equilibrium because of an information transmission conflict between the government and the public. Multiple equilibria are possible: if foreign lenders are pessimistic about the country’s stability, they demand a high interest on the debt, exacerbat...

Appendix to "Financial Crises and Political Crises"

PBE Type i: Neither default nor political crisis If V ≤ χL, the costs of default are always larger than the costs of servicing the debt even for the benevolent government. Then in equilibrium, the government proposes to service the debt, which is accepted by the representative agent. Hence the debt is repaid and political crisis is avoided. Neither the benevolent government nor the self interes...

Psychology, Financial Decision Making, and Financial Crises.

It is understandable that people ask how the current financial crisis could happen. As the market actors appear irrational, it is also understandable that people—lay people and experts alike—believe that psychological factors play a decisive role. Is there evidence for such a role, and what is the evidence? This monograph reviews, evaluates, and discusses research—primarily psychological resear...