In this dissertation we examine the determinants and consequences of financial crises. In part 1 we ask: what causes some financial crises to produce a sudden collapse in economic activity, how common are such collapses, and what are the mechanisms that lead to their occurrence? Concentrating on Calvo's 'sudden-stop' syndrome---i.e. the reversal of capital flows that accompanies some crises, we show that sudden stop crises lead to dramatic contractions of the economy. Output developments in countries experiencing a currency crisis without a capital flow reversal are shown to be radically different from those of sudden-stops. Evidence is presented on the magnitude of output loss, the duration of recessions and on investment-credit channels that lead to such dynamics.; Part 2 looks into the behavior of the IMF. The focus is on "moral hazard," created when the IMF provides bailouts to countries that face a BOP crisis. Two central questions are posed: is moral hazard observable in the data; and, if it is, what is its magnitude? We search for evidence that the unprecedented bailouts of the last decade have changed the investing environment in such a way that international investors started believing that their investments were insured. Our events-study is based on IMF-led events identified as both important and unexpected, such as the bailout loan for Mexico in 1995 and the absence of one for Russia in 1998. Our conclusion is negative: no such change in the moral hazard effect was observed. We demonstrate that events surrounding the out-of-sample Argentinean default (Dec. 2001) support our finding.; Part 3 examines what is perceived as one of the main culprits in the occurrence of banking crises: financial liberalization. If liberalization is accompanied by insufficient prudential supervision of the banking sector, it will result in excessive risk taking by financial intermediaries and a subsequent crisis. Having evaluated the empirical validity of this hypothesis, we conclude that such a development is, at worse, only a medium run threat to the health of the banking sector. We find that a more immediate danger is the loss of monopoly power that liberalization typically entails.
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