Whither Capitalism? Financial Externalities and Crisis
AbstractAs with global warming, so with financial crises – externalities have a lot to answer for. We look at three of them. First the financial accelerator due to ‘fire sales’ of collateral assets -- a form of pecuniary externality that leads to liquidity being undervalued. Second the ‘risk- shifting’ behaviour of highly-levered financial institutions who keep the upside of risky investment while passing the downside to others thanks to limited liability. Finally, the network externality where the structure of the financial industry helps propagate shocks around the system unless this is checked by some form of circuit breaker, or ‘ring-fence’. The contrast between crisis-induced Great Recession and its aftermath of slow growth in the West and the rapid - and (so far) sustained - growth in the East suggests that successful economic progress may depend on how well these externalities are managed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 79.
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: CV4 7AL COVENTRY
Phone: +44 (0) 2476 523202
Fax: +44 (0) 2476 523032
Web page: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/
More information through EDIRC
Externalities; financial accelerator; limited liability; risk-shifting; global imbalances; financial networks;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Laibson & Johanna Mollerstrom, 2010.
"Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis,"
NBER Working Papers
15759, National Bureau of Economic Research, Inc.
- David Laibson & Johanna Mollerstrom, 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis," Economic Journal, Royal Economic Society, vol. 120(544), pages 354-374, 05.
- Laibson, David I. & Mollerstrom, Johanna Britta, 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis," Scholarly Articles 4686766, Harvard University Department of Economics.
- Arvind Krishnamurthy, 2010. "Amplification Mechanisms in Liquidity Crises," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 1-30, July.
- Mankiw, N. Gregory, 1986.
"The equity premium and the concentration of aggregate shocks,"
Journal of Financial Economics,
Elsevier, vol. 17(1), pages 211-219, September.
- N. Gregory Mankiw, 1986. "The Equity Premium and the Concentration of Aggregate Shocks," NBER Working Papers 1788, National Bureau of Economic Research, Inc.
- Marcus Miller & Joseph E. Stiglitz, 2010.
"Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?,"
NBER Working Papers
15817, National Bureau of Economic Research, Inc.
- Marcus Miller & Joseph Stiglitz, 2010. "Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?," Economic Journal, Royal Economic Society, vol. 120(544), pages 500-518, 05.
- Miller, Marcus & Stiglitz, Joseph E, 2009. "Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?," CEPR Discussion Papers 7469, C.E.P.R. Discussion Papers.
- Gai, Prasanna & Kapadia, Sujit, 2010. "Contagion in financial networks," Bank of England working papers 383, Bank of England.
- Miller Marcus & Santos Monteiro Paulo & Zhang Lei, 2011. "Eastern Caution, Western Exuberance and Global Imbalances," Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 1-42, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Snape).
If references are entirely missing, you can add them using this form.