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Financial crises: reducing pro-cyclicality


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  • Ashima Goyal


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.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.

Volume (Year): 2 (2009)
Issue (Month): 1 ()
Pages: 173-183

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Handle: RePEc:taf:macfem:v:2:y:2009:i:1:p:173-183

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Keywords: regulation; countercyclical; incentives; diversity;


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Cited by:
  1. Ashima Goyal, 2009. "Insecurities of the old and marginalized: Inflation, oil shocks, financial crisis and social security," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2009-003, Indira Gandhi Institute of Development Research, Mumbai, India.
  2. Ashima Goyal, 2011. "History of monetary policy in India since independence," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-018, Indira Gandhi Institute of Development Research, Mumbai, India.


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