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The Financial Crisis and the Systemic Failure of Academic Economics

  • 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)

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.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 09-03.

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Length: 14 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:kud:kuiedp:0903
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  1. David Hendry & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Economics Series Working Papers 2003-W14, University of Oxford, Department of Economics.
  2. 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.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," CEMA Working Papers 595, China Economics and Management Academy, Central University of Finance and Economics.
  4. Kevin D. Hoover & Katarina Juselius & Søren Johansen, 2007. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," Discussion Papers 07-35, University of Copenhagen. Department of Economics.
  5. Barry Eichengreen, 2008. "Origins and Responses to the Current Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(4), pages 6-11, December.
  6. 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.
  7. Masanao Aoki, . "Reconstructing Macroeconomics: A Perspective from Statistical Physics and Combinatorial Stochastic Processes," UCLA Economics Online Papers 390, UCLA Department of Economics.
  8. Krahnen, Jan Pieter, 2005. "Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes," CFS Working Paper Series 2005/05, Center for Financial Studies (CFS).
  9. Krahnen, Jan Pieter & Wilde, Christian, 2008. "Risk transfer with CDOs," CFS Working Paper Series 2008/15, Center for Financial Studies (CFS).
  10. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, July.
  11. 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.
  12. Krahnen, Jan Pieter & Wilde, Christian, 2006. "Risk Transfer with CDOs and Systemic Risk in Banking," CEPR Discussion Papers 5618, C.E.P.R. Discussion Papers.
  13. repec:tpr:qjecon:v:107:y:1992:i:3:p:797-817 is not listed on IDEAS
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