... series approach are required, as for example in Granger (1988) amongst others. Free Banking Leads to Stability of the Financial System The underlying assumption of the thesis is that market ... new-Keynesian notions of asymmetric information (see, for example, Stiglitz and Weiss, 1981), which leads to two types of problems: adverse selection and moral hazard. Adverse selection refers to ... reasons, which have to do with the possibility of inadequate regulation over banking practices, which leads to undue risk-taking, especially in the presence of deposit insurance. Under such circumstances...