ABSTRACT
Introduction The global financial crisis of 2007-8 and the ones that hit many peripheral European countries1 reignited interest in the topic of financial instability and financial crises among academics, researchers, and policy-makers. Awareness was similarly awakened following the East Asia financial crisis almost ten years earlier, in 1997-8, and other episodes of financial turbulence throughout the current and previous centuries. Financial crises are a recurring phenomenon with a history stretching back long before the Great Depression of 1929. Most crises are similar in many dimensions and can result in serious economic and social costs, often associated with a sharp drop in employment and output. Adverse implications could extend as well to the fiscal situation, the effectiveness of the monetary policy, and the external sector. In an interlinked world economy the damage may not be limited to a single economy, where the crisis originated, and the fear of adverse contagion or spillover effects, with the rapid spread of the crisis across other economies, is a major policy issue. Therefore, understanding the origins of the crisis, where monetary and fiscal policies could have played a contributing role, and identifying the real causes and linkages is of utmost importance in helping monetary and fiscal authorities and financial system regulators and supervisors learn the right lessons to allow them to address existing weaknesses, strengthen the financial system, and limit contagion effects.
