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"Red Star Spangled Banner" Scrutinizing the Root Causes of Financial Crisis

  • Christian Fahrholz

    ()

    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

  • Andreas Kern

In this article we inquire into the root causes of the present financial crisis by drawing on a Heckscher-Ohlin-Samuelson trade model. At the origin of the current crisis are global imbalances originating from distortions in relative prices. Due to impasses in international production, financial repression in countries that seek to suppress real appreciation has resulted in excessive capital-intensive production and an expansion of financial service sectors in flexible market economies. Moreover, financial globalization has been a vehicle for exporting real appreciation pressures from catching-up economies to mature economies, thus aggravating global imbalances.

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File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_hlj05-2009.pdf
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Paper provided by Friedrich-Schiller-University Jena in its series Global Financial Markets Working Paper Series with number 05-2009.

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Date of creation: 14 Jun 2010
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Handle: RePEc:hlj:hljwrp:05-2009
Contact details of provider: Web page: http://www.gfinm.de

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