Financial Crises: A Hardy Perennial

Abstract

Since the early 1970s, four waves of financial crises have broken; many lenders in three, four, or more countries collapsed at about the same time as the prices of real estate and equities in these countries fell sharply. Household wealth declined with the sharp fall in the prices of equities and real estate, and banks restrained the supply of credit as losses depleted banks’ own capital. Collapse of demand brought recession; the Great Recession that began in 2008 was the most severe and the most global since the Great Depression of the 1930s. Recurring crises raise the question of how policy should respond. Can a lender of last resort reduce the cost of crisis? Without a global central bank, where can international lending of last resort come from?