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Finance and risk: does finance create risk?

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  • Giancarlo Bertocco

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

Rajan has earned a well-deserved reputation for having been one of the few to have hypothesized in a famous paper presented at the 2005 Jackson Hole conference that a disastrous financial crisis could have occurred. The key thesis put forward by Rajan was that the radical changes that had taken place over the previous decades rendered the economic system more fragile in that they induced the financial system to create a high amount of risk. The aim of this paper is to show: i) that Rajan’s thesis is not coherent with the mainstream theory according to which finance does not create risk; ii) that a meaningful theory capable of explaining the meaning of the elements used by Rajan to assert that finance creates risk can be elaborated on the basis of the lesson of Keynes and Schumpeter

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Bibliographic Info

Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf1115.

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Length: 30 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:ins:quaeco:qf1115

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