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The Financial Crisis and the Systemic Failure of Academic Economics

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  • D. COLANDER
  • al.

Abstract

The authors of the article claim that 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. In their view, this lack of understanding is due to a misallocation of research efforts in economics. They 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 economic research, 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.

Suggested Citation

  • D. COLANDER & al., 2010. "The Financial Crisis and the Systemic Failure of Academic Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
    • Handle: RePEc:nos:voprec:2010-06-2
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Hens, Thorsten & Schenk-Hoppe, Klaus Reiner (ed.), 2009. "Handbook of Financial Markets: Dynamics and Evolution," Elsevier Monographs, Elsevier, edition 1, number 9780123742582.
    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. Jan Pieter Krahnen, 2005. "Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(4), pages 499-519, November.
    5. D. COLANDER & al., 2010. "The Financial Crisis and the Systemic Failure of Academic Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
    6. Kevin D. Hoover & Soren Johansen & Katarina Juselius, 2008. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," American Economic Review, American Economic Association, vol. 98(2), pages 251-255, May.
    7. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
    8. Krahnen, Jan Pieter & Wilde, Christian, 2008. "Risk transfer with CDOs," CFS Working Paper Series 2008/15, Center for Financial Studies (CFS).
    9. 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.
    10. Barry Eichengreen, 2008. "Origins and Responses to the Current Crisis," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(4), pages 6-11, December.
    11. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
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    More about this item

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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