IDEAS home Printed from https://ideas.repec.org/p/ins/quaeco/qf1116.html
   My bibliography  Save this paper

Housing bubble and economic theory: is mainstream theory able to explain the crisis?

Author

Listed:
  • Giancarlo Bertocco

    (Department of Economics, University of Insubria, Italy)

Abstract

The current crisis in the global economy is considered on a par with the Great Depression of the 1930s. We can therefore ask whether the crisis will lead economists to revise the mainstream theory. The first result presented in this paper is to show that the traditional theory does not permit the formulation of a coherent explanation of the causes of the crisis because it uses concepts that are not coherent with the dominant theory of finance. The second result is to show that these concepts are coherent with a theory of finance that can be elaborated on the basis of the lesson of Schumpeter, Keynes and Minsky

Suggested Citation

  • Giancarlo Bertocco, 2011. "Housing bubble and economic theory: is mainstream theory able to explain the crisis?," Economics and Quantitative Methods qf1116, Department of Economics, University of Insubria.
  • Handle: RePEc:ins:quaeco:qf1116
    as

    Download full text from publisher

    File URL: https://www.eco.uninsubria.it/RePEc/pdf/QF2011_16.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Philip Arestis & Ajit Singh, 2010. "Financial globalisation and crisis, institutional transformation and equity," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 225-238, March.
    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. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    4. David Colander, 2010. "The economics profession, the financial crisis, and method," Journal of Economic Methodology, Taylor & Francis Journals, vol. 17(4), pages 419-427.
    5. Sachs Jeffrey D., 2009. "Rethinking Macroeconomics," Capitalism and Society, De Gruyter, vol. 4(3), pages 1-9, December.
    6. James Crotty, 2011. "The Realism of Assumptions Does Matter: Why Keynes-Minsky Theory Must Replace Efficient Market Theory as the Guide to Financial Regulation Policy," UMASS Amherst Economics Working Papers 2011-05, University of Massachusetts Amherst, Department of Economics.
    7. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-610, May.
    8. Jan Kregel, 2009. "Why don't the bailouts work? Design of a new financial system versus a return to normalcy," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 653-663, July.
    9. L. Randall Wray, 2009. "The rise and fall of money manager capitalism: a Minskian approach," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 807-828, July.
    10. Axel Leijonhufvud, 2009. "Out of the corridor: Keynes and the crisis," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 741-757, July.
    11. Leopoldo Fergusson, 2006. "Institutions for Financial Development: What are they and where do they come from?," Journal of Economic Surveys, Wiley Blackwell, vol. 20(1), pages 27-70, February.
    12. Salvatore Capasso, 2004. "Financial Markets, Development and Economic Growth: Tales of Informational Asymmetries," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 267-292, July.
    13. Laidler, David, 2010. "Lucas, Keynes, And The Crisis," Journal of the History of Economic Thought, Cambridge University Press, vol. 32(1), pages 39-62, March.
    14. Giancarlo Bertocco, 2007. "The characteristics of a monetary economy: a Keynes--Schumpeter approach," Cambridge Journal of Economics, Oxford University Press, vol. 31(1), pages 101-122, January.
    15. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 563-580, July.
    16. Robert Skidelsky, 2011. "The relevance of Keynes," Cambridge Journal of Economics, Oxford University Press, vol. 35(1), pages 1-13.
    17. Raghuram G. Rajan, 2006. "Has Finance Made the World Riskier?," European Financial Management, European Financial Management Association, vol. 12(4), pages 499-533, September.
    18. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    19. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    20. Morishima,Michio, 1992. "Capital and Credit," Cambridge Books, Cambridge University Press, number 9780521418409, October.
    21. Blinder, Alan S & Stiglitz, Joseph E, 1983. "Money, Credit Constraints, and Economic Activity," American Economic Review, American Economic Association, vol. 73(2), pages 297-302, May.
    22. Salvatore Capasso, 2004. "Financial Markets, Development and Economic Growth: Tales of Informational Asymmetries," Journal of Economic Surveys, Wiley Blackwell, vol. 18(3), pages 267-292, July.
    23. Paul Wachtel, 2003. "How much do we really know about growth and finance?," Economic Review, Federal Reserve Bank of Atlanta, vol. 88(Q1), pages 33-47.
    24. David Colander, 2018. "How Economists Got It Wrong: A Nuanced Account," Chapters, in: How Economics Should Be Done, chapter 12, pages 163-189, Edward Elgar Publishing.
    25. Tony Lawson, 2009. "The current economic crisis: its nature and the course of academic economics," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 759-777, July.
    26. Hyman P. Minsky, 1980. "Money, Financial Markets, and the Coherence of a Market Economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 3(1), pages 21-31, October.
    27. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-1151, September.
    28. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
    29. Alessandro Roncaglia, 2010. "Le origini culturali della crisi," Moneta e Credito, Economia civile, vol. 63(250), pages 107-118.
    30. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    31. Laidler, David, 2010. "Lucas, Keynes, And The Crisis - Erratum," Journal of the History of Economic Thought, Cambridge University Press, vol. 32(3), pages 443-443, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giancarlo Bertocco, 2011. "Finance and risk: does finance create risk?," Economics and Quantitative Methods qf1115, Department of Economics, University of Insubria.
    2. Bertocco, Giancarlo, 2008. "Finance and development: Is Schumpeter's analysis still relevant?," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1161-1175, June.
    3. Giancarlo Bertocco, 2009. "The Relationship Between Saving and Credit from a Schumpeterian Perspective," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(3), pages 607-640.
    4. Leisen Fabrizio & Mira Antonietta, 2006. "Coalescence time and second largest eigenvalue modulus in the monotone reversible case," Economics and Quantitative Methods qf06011, Department of Economics, University of Insubria.
    5. Rodolfo Signorino, 2011. "Economics in the Mirror of the Financial Crisis," Chapters, in: Steven Kates (ed.), The Global Financial Crisis, chapter 11, Edward Elgar Publishing.
    6. Eduardo Strachman & Jos Ricardo Fucidji, 2012. "The Current Financial And Economic Crisis Empirical And Methodological Issues," Journal of Advanced Studies in Finance, ASERS Publishing, vol. 3(1), pages 95-109.
    7. Anna Ząbkowicz & Sławomir Czech, 2016. "Revisiting conventional wisdom: does financialization have to leave sovereigns subordinated?," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 47.
    8. Eliana Lauretta & Sajid M. Chaudhry & Daniel Santamaria, 2023. "Unveiling the black swan of the finance‐growth Nexus: Assumptions and preliminary evidence of virtuous and unvirtuous cycles," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3749-3773, October.
    9. Nicola Limodio, 2015. "The Development Impact of Financial Regulation: Evidence from Ethiopia and Antebellum USA," 2015 Meeting Papers 355, Society for Economic Dynamics.
    10. Michelangelo Puliga & Andrea Flori & Giuseppe Pappalardo & Alessandro Chessa & Fabio Pammolli, 2016. "The Accounting Network: How Financial Institutions React to Systemic Crisis," PLOS ONE, Public Library of Science, vol. 11(10), pages 1-14, October.
    11. Stolbov, Mikhail, 2013. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-22.
    12. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    13. Mirakhor, Abbas, 2012. "Islamic Finance, Risk Sharing and Macroeconomic Policies," MPRA Paper 56338, University Library of Munich, Germany.
    14. Paolo Coccorese & Damiano Silipo, 2015. "Growth without finance, finance without growth," Empirical Economics, Springer, vol. 49(1), pages 279-304, August.
    15. Frederic S. Mishkin, 2011. "Monetary Policy Strategy: Lessons from the Crisis," NBER Working Papers 16755, National Bureau of Economic Research, Inc.
    16. Giancarlo Bertocco, 2014. "Global Saving Glut and Housing Bubble: A Critical Analysis," Economia politica, Società editrice il Mulino, issue 2, pages 195-218.
    17. Alaa Alaabed & Mansur Masih & Abbas Mirakhor, 2016. "Investigating risk shifting in Islamic banks in the dual banking systems of OIC member countries: An application of two-step dynamic GMM," Risk Management, Palgrave Macmillan, vol. 18(4), pages 236-263, December.
    18. Mettenheim Kurt, 2013. "Back to Basics in Banking Theory and Varieties of Finance Capitalism," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 357-405, May.
    19. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    20. Jorge Garcia-Arias & Eduardo Fernandez-Huerga & Ana Salvador, 2013. "European Periphery Crises, International Financial Markets, and Democracy," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(4), pages 826-850, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ins:quaeco:qf1116. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Segreteria Dipartimento (email available below). General contact details of provider: https://edirc.repec.org/data/feinsit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.