International Financial Crises: Ideas and Policies

In the early years of the post-BW era, especially during the 1970s, it is surprisingly hard to find economists discussing international ‘crises’ — either economic crises or more specific financial crises. In the pre-BW era, the work of Ragnar Nurkse (1944) became the point of reference for international currency crises, and his work influenced the formulation of the formal BW agreement (Endres 2005, p.14). In the BW era, significant balance of payments imbalances were considered to have caused broader adjustment, confidence and liquidity problems (Bordo 1993) — the term ‘international financial crisis’ was rarely used. Paul Krugman’s (1979) article modelled balance of payments crises; he was one of the first economists to use the term ‘crisis’ frequently in the post-BW era. However, priority and authority on the subject in this period must go to Charles Kindleberger’s Manias, Panics and Crashes: A History of Financial Crises (1978). This book has been reprinted and revised over six editions with the last edition appearing in 2010. Furthermore, it is very rare to find prominent economists in the 1990s referring to research specifically on crises (or subjects with equivalent substantive content) before the 1980s. For example, Lawrence Summers’ ‘International Financial Crises: Causes, Prevention and Cures’ (2000) does not cite any literature on the subject earlier than 1983. We are driven to conclude that a certain confluence of events post-1980 gave rise to increasing attention, by economists, to the subject of international crises. Indeed, it may confidently be asserted that increasing use of the term ‘international financial crisis’ was a creature of ongoing, market-oriented international economic integration, and was one of the pervasive consequences of integration in the post-BW era.