Financial crises can happen for a variety of reasons: (a) nobody really understands what is going on (the collective cognition paradigm); (b) some understand better than others and take advantage of their knowledge (the asymmetric information paradigm); (c) everybody understands, but crises are...

This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposed -- information asymmetry, enforcement, collective action, and collective cognition. Financial development is shaped by the efforts...

The global financial crisis brought public guarantees to the forefront of the policy debate. Based on a review of the theoretical foundations of public guarantees, this paper concludes that the commonly used justifications for public guarantees based solely on agency frictions (such as adverse...

This paper analyzes the process of financial development over the last three to four decades from the perspective of the fundamental frictions (agency and collective) to which economic agents were exposed. A comprehensive statistical benchmarking analysis showed that financial development...

The Subprime crisis largely resulted from failures to internalize systemic risk evenly across financial intermediaries and recognize the implications of Knightian uncertainty and mood swings. A successful reform of prudential regulation will need to integrate more harmoniously the three...

This paper examines the conceptual foundations of macroprudential policy by reviewing the literature on financial frictions from a policy perspective that systematically links state interventions to market failures. The method consists in gradually incorporating into the Arrow-Debreu world a...

This paper explores the conceptual foundations of macroprudential policy. It does so within a framework that gradually incorporates and interacts two types of frictions (principal-agent and collective action) with two forms of rationality (full and bounded), all in the context of aggregate...

The global financial crisis brought government guarantees to the forefront of the debate. Based on a review of frictions that hinder financial contracting, this paper concludes that the common justifications for government guarantees—i.e., principal-agent frictions or un-internalized...

This paper reviews the determinants of Latin America's uneven growth based on an accounting decomposition that breaks down countries' growth (relative to the world) into three trade-related channels: (i) an export pull measuring the traction exerted by the country's exports, (ii) an external...

Throughout, the history of the Latin America and Caribbean (LAC) region, natural resource wealth has been critical for its economies. Production of precious metals, sugar, rubber, grains, coffee, copper, and oil have at various periods of history made countries in Latin America-and their...