Abstract
In recent times certain countries or regions have experienced severe financial crises with large output loss. This has occurred whether the exchange rates were pegged or flexible. There appear to be basic mechanisms at work from which even flexible exchange rate regimes cannot escape. This paper reviews some of the stylized facts that appear to be common to such financial crises and surveys some recent financial market models that attempt to model such macro-caused financial and real crises. We focus on the connection between exchange rate volatility, financial crisis and large output loss. We find models that exhibit multiple equilibria particularly relevant to explain macro-caused financial and real crises.
