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The Failure Of Financial Macroeconomics And What To Do About It

  • JEAN-BERNARD CHATELAIN
  • KIRSTEN RALF

The bargaining power of international banks is currently still very high as compared with what it was at the time of the Bretton Woods conference. As a consequence, systemic financial crises are likely to remain recurrent phenomena with large effects on macroeconomic aggregates. Mainstream macroeconomic models dealing with financial frictions failed to explain at least eight stylized facts of the ongoing crisis. We therefore suggest two complementary assumptions: (i) a systemic bankruptcy risk stable equilibrium may be feasible, and (ii) inefficient financial markets rarely ensure that the price of an asset is equal to its 'fundamental long-term value'.

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File URL: http://hdl.handle.net/10.1111/j.1467-9957.2012.02327.x
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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 80 (2012)
Issue (Month): (09)
Pages: 21-53

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Handle: RePEc:bla:manchs:v:80:y:2012:i::p:21-53
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