One of the distinctive features of the recent recession in a large number of OECD countries was financial fragility, whereby the pattern of economic activity was considered to be severely affected by the efforts of households and firms to correct disequilibria in their balance sheet positions so as to avoid financial distress. Whereas a number of papers have been prepared focussing on patterns of fragility in individual countries, there have been relatively few analyses of the phenomenon at a global level, and in particular of the features that distinguished countries experiencing financial fragility from those that did not. This paper seeks to fill this gap by assessing experience of financial fragility for the G-7 countries, Scandinavia and Australia over 1988-93, using as material key indicators at a macroeconomic level. A general pattern of financial fragility is outlined and traced in the data for a variety of countries, and the distinctive features of countries where fragility did not arise is also considered. In this context, particular focus is laid on the interrelation between asset prices and credit, as well as the potential importance of moral hazard and adverse selection. The second section complements this analysis by assessing the results of a number of more detailed studies of issues in financial fragility that have been made at a national level, and which are nonetheless considered to have a broader applicability, notably the role of distributional factors within sectors. The implications and likelihood of recurrence of these patterns is considered in a concluding section.
