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Current Financial Crisis: The End of Financial Liberalisation?

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  • Philip Arestis

    (University of Cambridge)

  • Carolina Troncoso Baltar

    (University of Cambridge)

  • Anderson Cavalcante

    (University of Cambridge)

Abstract

The current financial crisis has called the role of the monetary policy into question and has also re-opened the debates about a new regulation and the need of prudential controls of banking activity. This paper argues that the origins of the current crisis can be found in two interrelated elements that have been operating since the decade of the seventies: the financial liberalization policies implemented in developed and developing economies, and the economic policy based on the new consensus in macroeconomics. This new macroeconomic policy was focused on the monetary policy, with the downgrading of fiscal policy, and in the use as a main instrument of the continuous changes in the interest rates in order to control inflation rates. As a result, a huge and unprecedented liquidity and household borrowing has been generated in the main world economies, mainly in the USA and the United Kingdom, that is in the origin on the current crisis.

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Bibliographic Info

Article provided by Gobierno Vasco / Eusko Jaurlaritza / Basque Government in its journal EKONOMIAZ.

Volume (Year): 72 (2009)
Issue (Month): 03 ()
Pages: 12-33

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Handle: RePEc:ekz:ekonoz:2009303

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Keywords: financial liberalisation; crisis; economic growth.;

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  1. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  2. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04.
  11. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
  12. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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