Year: 1996
Type: report
Abstract: This paper explains the puzzle of how a developing economy can shift dramatically from a path of reasonable growth before a financial crisis, as was the case in Mexico in 1994, to a sharp decline in economic activity after a crisis occurs.It does so by outlining an asymmetric information framework for analyzing banking and financial crises in developing countries.The asymmetric information framework shows why the banking sector is so important to the economy, particularly in developing countries and provides a rationale for bank regulation and supervision.This asymmetric information framework is then used to understand why banking and financial crises occur and why they can have such a devastating effect on the economy, particularly in developing countries.The paper concludes by discussing policy implications for developing countries.An important theme is that an appropriate institutional structure is critical to preventing banking and financial crises in developing countries and to reducing their undesirable effects if they should occur.
DOI: 10.3386/w5600
Author: Frederic Mishkin
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funder: World Bank Group
OpenAlex ID: W2132809519