CHICAGO --  Ever since widespread defaults on microloans in India thrust the microfinance industry into crisis, a compelling and fundamental question has been renewed: How do we determine what impact financial innovations and financial policy changes will have on the economies of developing countries?

A new book by MIT economist Robert M. Townsend explains for the first time how economists and policymakers can merge rigorous economic models with extensive data to answer important questions like these.

"I think there is a need for a deeper, integrated understanding of the financial structure of emerging market economies," states Townsend. "Without a better framework, we risk greatly misunderstanding the effects of 'helpful' actions in developing countries. It takes both models and microeconomic data to judge whether policy is helpful or harmful."