ABSTRACT
This chapter examines the accuracy of the business-cycle model of financial crises. The financial crises and related business-cycle developments during the postwar period will be examined to see if they are generally consistent with the main features of the model. In carrying out this evaluation, it is useful to recognize that the business-cycle model encompasses two different but interrelated phases. In the first phase, the conditions develop that make the economic system vulnerable to the outbreak of a financial crisis. In the second phase, the crisis itself unfolds. Corporate sector, in relation to the financial crisis, in the following order: the profit rate, new contracts and orders for plant and equipment, investment in plant and equipment, the financial crisis, the financing gap, and the trough of the series on new contracts and orders. However, the more significant relationship is that the peak in investment is followed closely by the peak of the financing gap.
