In the case of the Asian crisis, the financing of domestic projects with foreign denominated debt — either directly or through the banking system — created an important vulnerability, one that was dramatically aggravated by the sharp depreciation of the currencies in the crisis countries, and one that domestic central banks had limited power to arrest.
So, what are the lessons from this framework for thinking about recessions in general and the Asian crisis in particular? It would be tempting to encourage countries to avoid adverse shocks. But of course, shocks are, by definition, unavoidable. To be sure, risks can be avoided or mitigated by limiting vulnerabilities.