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Theories of Financial Crises

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Author Info

  • Daniel Detzer

    (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE))

  • Hansjorg Herr

    (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE))

Abstract

This paper analyses financial crises from a theoretical point of view. For this it reviews what different schools of economic thought have to say about financial crises. It examines first the approaches that regard financial crises as a disturbing factor of a generally stable real economy (Wicksell, Hayek, Schumpeter, Fisher, and the early Keynes). Thereafter, approaches, where the dichotomy between the monetary and the real sphere is lifted are reviewed. Here in particular the later works of Keynes and the contributions of Minsky are of importance. Lastly, it is looked at the behavioural finance approaches. After having reviewed the different approaches it is examined, where those approaches have similarities and where they fruitfully can be combined. Based on this, we develop an own theoretical framework methodologically based on a Wicksellian cumulative process, however, overcoming the neoclassical dichotomy. The paper ends with some policy recommendations based on the developed theoretical framework.

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Bibliographic Info

Paper provided by Financialisation, Economy, Society & Sustainable Development (FESSUD) Project in its series Working papers with number wpaper25.

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Length: 75 pages
Date of creation: 15 Feb 2014
Date of revision:
Handle: RePEc:fes:wpaper:wpaper25

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Postal: FESSUD Co-ordinator (Malcolm Sawyer) Leeds University Business School Maurice Keyworth Buidling Leeds LS2 9JT

Related research

Keywords: Financial crisis; crisis theory; behavioral finance; Hayek; Keynes; Minsky; Schumpeter; Wicksell;

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References

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  1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  2. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  3. John Williamson, 2005. "Curbing the Boom-Bust Cycle: Stabilizing Capital Flows to Emerging Markets," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa75, November.
  4. Martin H. Wolfson, 1996. "A Post Keynesian Theory of Credit Rationing," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(3), pages 443-470, April.
  5. Paul Davidson, 2010. "Behavioral economists should make a turn and learn from Keynes and Post Keynesian economics," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 33(2), pages 251-254, January.
  6. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, September.
  7. John E. King, 2013. "Should post-Keynesians make a behavioural turn?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 10(2), pages 231-242.
  8. Hansjörg Herr, 2009. "The labour market in a Keynesian economic regime: theoretical debate and empirical findings," Cambridge Journal of Economics, Oxford University Press, vol. 33(5), pages 949-965, September.
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