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Time, expectations and financial markets

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  • Herr, Hansjörg
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    Abstract

    After the breakdown of the Bretton Woods system and the beginning of the neoliberal revolution, financial markets became very unstable. The theoretical background of the neoliberal revolution stands in the tradition of Léon Walras. He was very much impressed by Isaac Newton, used his methodology and wanted to lift economic thinking on the same level as Newton's mechanics. The rational expectation approach and the hypothesis of efficient financial markets follow this methodology. In a Keynesian-Schumpeterian approach, expectations cannot be explained by economic models - as in the case of rational expectations. The economy is not a self-regulating stable system. Development depends on social and political processes which are beyond the scope of narrow economic modelling. The world needs a fundamental re-regulation of asset and financial markets as well as labour markets to turn globalisation into a project with more winners than there are now. --

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    Bibliographic Info

    Paper provided by Berlin School of Economics and Law, Institute for International Political Economy (IPE) in its series IPE Working Papers with number 03/2009.

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    Date of creation: 2009
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    Handle: RePEc:zbw:ipewps:032009

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    Web page: http://www.ipe-berlin.org/
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    Related research

    Keywords: Macroeconomics; Post-Keynesian; Financial Markets and the Macroeconomy;

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    References

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    1. Truger, Achim & Schulten, Thorsten & Hein, Eckhard, 2004. "Wage trends and deflation risks in Germany and Europe," WSI Discussion Papers 124, Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung.
    2. 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, Peterson Institute for International Economics, number pa75, November.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
    4. Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, Springer, vol. 157(2), pages 129-207, June.
    5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 103-124, April.
    6. Paul Davidson, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 5(1), pages 129-143, Winter.
    7. Hansjörg Herr, 2009. "The labour market in a Keynesian economic regime: theoretical debate and empirical findings," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 33(5), pages 949-965, September.
    8. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1113-44, December.
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    Cited by:
    1. Borgersen, Trond-Arne & King, Roswitha M., 2011. "Reallocation and restructuring: A generalization of the Balassa–Samuelson effect," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 22(4), pages 287-298.

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