A Contribution to the Theory of Financial Fragility and Crisis
AbstractThree interrelated aspects typical of most financial crisis of domestic origin are brought together in a model in this paper. The first aspect is debt financed consumption boom supported by rising asset prices which ultimately leads to credit crunch and debt deflation as lenders lose confidence in borrowers. This is related to the second aspect tracing gradual evolution towards Ponzi finance. This is accompanied by fragility of the financial sector itself and its insolvency as an inevitable outcome of unregulated economic expansion. The paper concludes with comments on how these three aspects interact in the real world of possible extensions.
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Bibliographic InfoPaper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 65.
Length: 18 pages including 2 Figures
Date of creation: May 2010
Date of revision:
Publication status: Published as wiiw Working Paper
Find related papers by JEL classification:
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- N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
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- Hein, Eckhard, 2011.
"Distribution, ‘Financialisation’ and the Financial and Economic Crisis – Implications for Post-crisis Economic Policies,"
31180, University Library of Munich, Germany.
- Hein, Eckhard, 2011. "Distribution, 'financialisation' and the financial and economic crisis: Implications for post-crisis economic policies," IPE Working Papers 09/2011, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
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