Financial Crises and the Business Cycle: How Different are the 1980s?

In recent years we have become much more aware that modern capitalist economies are susceptible to periodic financial crises. In the past the visibility of these episodes was elaborated with such colourful names as the Panic of 1907 and the Panic of 1893. Their visibility in the early part of the twentieth century, however, hardly needed elaboration, for they often led to sharp crashes of the financial system and deep depressions. In more recent times, macroeconomic policy and operations by the central bank as a lender of last resort have mitigated the implications of financial crises for the stability of the economy. Nonetheless, close study of these phenomena indicate that the potential for serious repercussions on the financial system and the real economy still exist.