#09-15
Financial Crises: Theory and Evidence
Franklin Allen, Ana Babus and Elena Carletti, June 2009
Abstract: Financial crises have been pervasive phenomena throughout history. Bordo et al. (2001)
find that their frequency in recent decades has been double that of the Bretton Woods Period
(1945-1971) and the Gold Standard Era (1880-1993), comparable only to the Great Depression.
Nevertheless, the financial crisis that started in the summer of 2007 came as a great surprise to
most people. What initially was seen as difficulties in the US subprime mortgage market, rapidly
escalated and spilled over to financial markets all over the world. The crisis has changed the
financial landscape worldwide and its costs are yet to be evaluated.
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