THEORETICAL ASPECTS OF MONETARY AND FINANCIAL CRISES. SPIRAL OF LOSSES.

One of the many issues associated with financial crises is related to interest rate policies during and after the crisis. A pertinent opinion is given by Christiano, Braggion and Rodlos (2006), that increased interest rates during the crisis, corroborated with immediate decrease post-crisis is the best handle on such a situation. Financial institutions fund new investments with loans and borrowed funds. Consequently, nowadays' financial system looks more like a complex network of financial obligations. With the addition of modern financial techniques such as bonds and options, institutions have more funding options than ever. Herein fro, a series of theoretical aspects regarding monetary and financial crises are presented, alongside choices of corresponding macroeconomic models and causes of the Great Depression of 1929- 1933. The paper concludes with an explanation regarding spiraling losses as a result of the effects of asset prices. When a large number of upstanding financial institutions suffer a severe financial shock, they face backlashes in their volume and performance. Thus, such an asset price plummet leads to a drop in the population's welfare, inducing yet another backlash on companies, in a descending financial perpetuum mobile. [ABSTRACT FROM AUTHOR]