Chapter 12

International Financial Crises*

Guido Lorenzoni,    Northwestern University, Evanston, IL, USA, National Bureau of Economic Research, Cambridge, MA, USA

Abstract

This chapter surveys recent research on international financial crises. A financial crisis is characterized by a sudden, dramatic outflow of financial resources from an economy with an open capital account. This outflow may be primarily driven by the expectation of a large nominal devaluation, in a situation in which the domestic monetary-fiscal regime appears inconsistent with a fixed exchange rate. Or the outflow may be driven by a reallocation of funds by foreign and domestic investors, due to a changed perception in the country’s growth prospects, to an increase in the ...

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