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The Financial Crisis and the Systemic Failure of Academic Economics

Author

Listed:
  • David Colander

    (Department of Economics, Middlebury College)

  • Hans Föllmer

    (Department of Mathematics, Humboldt University Berlin)

  • Armin Haas

    (Potsdam Institute for Climate Impact Research)

  • Michael Goldberg

    (Whittemore School of Business & Economics, University of New Hampshire)

  • Katarina Juselius

    (Department of Economics, University of Copenhagen)

  • Alan Kirman

    (GREQAM, Université d’Aix-Marseille lll)

  • Thomas Lux

    (Department of Economics, University of Kiel)

  • Birgitte Sloth

    (Department of Business and Economics, University of Southern Denmark, Odense)

Abstract

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 once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession’s focus on models that, by design, disregard 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 the research economists undertake, 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

  • David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Birgitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Discussion Papers 09-03, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0903
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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.
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    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.
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    8. Krahnen, Jan Pieter & Wilde, Christian, 2008. "Risk transfer with CDOs," CFS Working Paper Series 2008/15, Center for Financial Studies (CFS).
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    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

    Keywords

    financial crisis; academic moral hazard; ethic responsibility of researchers;

    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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