The stylized fact for economies experiencing financial crises, that slow economic reform is followed by persistent stagnation, is usually explained as follows: Forbearance policy (i.e., an implicit subsidy to inefficient sectors) distorts resource allocation and causes a supply shortage of...

We construct a monetary model of financial crises that can explain two characteristic features of the global financial crisis in 2008/2009, namely, the widespread freeze of asset transactions and a sharp contraction in aggregate output. We assume that the assets, such as real estate, work as...

We propose a simple model of financial crises, which may be useful for the unified analysis of macro and financial policies implemented during the 2008-2009 financial crisis. A financial crisis is modeled as the disappearance of inside money due to the lemon problem à la Akerlof (1970), in a...

This paper constructs a model of financial crises that can explain characteristic features of the global financial crisis of 2008-2009, namely, the widespread freezing of asset transactions, the sharp contraction of aggregate output, and a deterioration in the labor wedge. This paper assumes...