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Modeling Financial Crises: A Schematic Approach

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  • John Harvey

    (Department of Economics, Texas Christian University)

Abstract

John Maynard Keynes’ argued that crises were systemic and that, unless serious reforms were implemented, they would tend to grow in frequency and severity. The paper sets out to build a Keynes-style model of crises that captures both the unique characteristics of each type and their common roots. A schematic method is employed that traces the processes in time and shows how events become interrelated and mutually causal. This permits us, as much as possible, to see everything at once, a necessity when the build up to a crisis may manifest itself in so many places

Suggested Citation

  • John Harvey, 2010. "Modeling Financial Crises: A Schematic Approach," Working Papers 201001, Texas Christian University, Department of Economics.
  • Handle: RePEc:tcu:wpaper:201001
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    File URL: http://www.econ.tcu.edu/RePEc/tcu/wpaper/wp10-01.pdf
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    References listed on IDEAS

    as
    1. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
    2. Stephen P. Dunn, 2001. "Bounded Rationality Is Not Fundamental Uncertainty: A Post Keynesian Perspective," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(4), pages 567-587, July.
    3. Lance Taylor, 2001. "Capital Market Crises: Liberalization, Fixed Exchange Rates and Market-Driven Destabilization," Palgrave Macmillan Books, in: Ha-Joon Chang & Gabriel Palma & D. Hugh Whittaker (ed.), Financial Liberalization and the Asian Crisis, chapter 3, pages 21-39, Palgrave Macmillan.
    4. Ilene Grabel, 2003. "Averting crisis? Assessing measures to manage financial integration in emerging economies," Cambridge Journal of Economics, Oxford University Press, vol. 27(3), pages 317-336, May.
    5. Gary A. Dymski, 1988. "A Keynesian Theory of Bank Behavior," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(4), pages 499-526, July.
    6. John Harvey, 2002. "Keynes' Chapter Twenty-Two: A System Dynamics Model," Working Papers 200201, Texas Christian University, Department of Economics.
    7. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar Publishing, number 1668.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Kohler, Karsten, 2019. "Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 270-283.
    2. John Nkwoma Inekwe, 2019. "The exploration of economic crises: parameter uncertainty and predictive ability," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(2), pages 290-313, May.
    3. Karsten Kohler & Engelbert Stockhammer, 2023. "Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles?," Industrial and Corporate Change, Oxford University Press, vol. 32(2), pages 551-572.
    4. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 9(1), pages 151-174, February.
    5. Ricardo Crespo & Daniel Heymann & Pablo Schiaffino, 2015. "Dealing with uncertainty evolving beliefs, rationalizations & the origins of economic crises," Documentos de trabajo del Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET) 2015-8, Universidad de Buenos Aires, Facultad de Ciencias Económicas, Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET).
    6. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Society (PKES).
    7. Oscar Pérez Rodriguez, 2014. "Inversión y endeudamiento en Colombia: un análisis de financiación y sostenibilidad," Revista CIFE, Universidad Santo Tomás, September.
    8. Švabovič Miroslav & Miškinis Algirdas, 2016. "A Quantitative Analysis of the Main Lithuanian Taxes and Their Optimisation During the Crisis," Ekonomika (Economics), Sciendo, vol. 95(3), pages 98-111, December.

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    More about this item

    Keywords

    financial crisis; Keynes; Minsky;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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