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Financial crises: reducing pro-cyclicality

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  • Ashima Goyal

Abstract

The swing in favour of markets weakened regulation, created incentives for excessive risk-taking, and reduced transparency and diversity. As a result, financial markets became more pro-cyclical. The right combination of regulation and markets is required to reverse this. Principle-based reform should aim to change behaviour rather than forbid activity. Central Bank accommodation has been blamed for the crisis, but excessive leverage due to lax regulation was of a much greater magnitude than any monetary imbalance. Capital's mobility and arbitrage in response to regulation, implies changes must be adopted globally. A diversity of voice and power is essential to enable implementation of the core set of proposals that can make financial markets more robust.

Suggested Citation

  • Ashima Goyal, 2009. "Financial crises: reducing pro-cyclicality," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 2(1), pages 173-183.
    • Handle: RePEc:taf:macfem:v:2:y:2009:i:1:p:173-183
    DOI: 10.1080/17520840902726565
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    References listed on IDEAS

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    1. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    3. Atif Mian & Amir Sufi & Francesco Trebbi, 2010. "The Political Economy of the US Mortgage Default Crisis," American Economic Review, American Economic Association, vol. 100(5), pages 1967-1998, December.
    4. Ashima Goyal, 2010. "Global Financial Architecture," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(2), pages 225-239, May.
    5. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
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    Cited by:

    1. Ashima Goyal, 2014. "History of Monetary Policy in India Since Independence," SpringerBriefs in Economics, Springer, edition 127, number 978-81-322-1961-3, June.
    2. Ashima Goyal, 2009. "Insecurities of the old and marginalized : Inflation, Oil Shocks, Financial Crisis and Social Security," Finance Working Papers 22933, East Asian Bureau of Economic Research.
    3. Ashima Goyal, 2010. "Global Financial Architecture," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(2), pages 225-239, May.

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