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The Financial Crisis and the Systemic Failure of Academic Economics

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  • David Colander
  • Hans Föllmer
  • Armin Haas
  • Michael Goldberg
  • Katarina Juselius
  • Alan Kirman
  • Thomas Lux
  • Brigitte Sloth

Abstract

The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession’s insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1489.

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Length: 17 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:kie:kieliw:1489

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Keywords: financial crisis; academic moral hazard; ethic responsibility of researchers;

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  1. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  2. Krahnen, Jan Pieter, 2005. "Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes," CFS Working Paper Series 2005/05, Center for Financial Studies (CFS).
  3. Cogley, Timothy & Sargent, Thomas J., 2008. "The market price of risk and the equity premium: A legacy of the Great Depression?," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 454-476, April.
  4. 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 1065-1188, November.
  5. Frydman Roman & Goldberg Michael D., 2008. "Macroeconomic Theory for a World of Imperfect Knowledge," Capitalism and Society, De Gruyter, vol. 3(3), pages 1-78, December.
  6. David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Brigitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Middlebury College Working Paper Series 0901, Middlebury College, Department of Economics.
  7. Kevin D. Hoover & Katarina Juselius & Søren Johansen, 2007. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," Discussion Papers 07-35, University of Copenhagen. Department of Economics.
  8. Barry Eichengreen, 2008. "Origins and Responses to the Current Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(4), pages 6-11, December.
  9. Krahnen, Jan Pieter & Wilde, Christian, 2008. "Risk transfer with CDOs," CFS Working Paper Series 2008/15, Center for Financial Studies (CFS).
  10. Hendry, David F & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Royal Economic Society Annual Conference 2003 105, Royal Economic Society.
  11. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, September.
  12. Krahnen, Jan Pieter & Wilde, Christian, 2006. "Risk Transfer with CDOs and Systemic Risk in Banking," CEPR Discussion Papers 5618, C.E.P.R. Discussion Papers.
  13. Masanao Aoki, . "Reconstructing Macroeconomics: A Perspective from Statistical Physics and Combinatorial Stochastic Processes," UCLA Economics Online Papers 390, UCLA Department of Economics.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Olaf Storbeck smackdown watch, nobel prize edition
    by Olaf Storbeck in Economics Intelligence on 2011-10-13 07:37:01
  2. A Nobel Prize for the Ancien Régime
    by Olaf Storbeck in Economics Intelligence on 2011-10-11 08:26:44
  3. Economics 2.0: a review
    by chris dillow in Stumbling and Mumbling on 2009-03-30 13:29:57
  4. Is de economische wetenschap verantwoordelijk voor het ontstaan van de kredietcrisis?
    by Hans Blommestein in Me Judice on 2009-11-25 12:00:00
  5. Temporary Crisis or Paradigm Shift?
    by matthiasgreiff in Matthias Greiff on 2009-10-19 18:50:21
  6. Where are the Development Political Scientists?
    by admin in NL-Aid on 2012-08-15 09:00:13
  7. The problems with economists: they don’t understand development
    by Seth Kaplan in Global Dashboard on 2012-09-19 17:39:27
  8. Time to democratize science?
    by ? in Backreaction on 2010-12-16 16:50:00
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