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The Financial Crisis 2007-08 and Causality: A Hicksian Perspective

Almost everyone agrees on two general features displayed by the recent banking crisis, namely: the crisis was stupefyingly complex and the financial system was devoured by its own creations. Beyond these points of agreement, there are many questions that will be debated by academics and policymakers for decades. One of the outstanding questions is what caused the financial crisis 2007-08. To shed light on this question, the paper compiles a list of the tentative causes of the recent financial crisis, discusses their separability and attempts an appraisal of the separable causes using the Hicksian methodology for causality analysis. Specifically, this paper identifies three major separable causes of the recent banking crisis and brings into sharp focus the far-from-trivial requirements that are necessary in order to demonstrate that a particular set of events can indeed be the preponderant causes of the severe banking crisis 2007-08.

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File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow075932.pdf
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Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp10-03.

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Length: 23 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:uow:depec1:wp10-03
Contact details of provider: Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
Phone: +612 4221-3659
Fax: +612 4221-3725
Web page: http://business.uow.edu.au/econ/index.html

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  1. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, 03.
  2. Heckman, James, 2003. "Conditioning, causality and policy analysis," Journal of Econometrics, Elsevier, vol. 112(1), pages 73-78, January.
  3. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "Financial Crash, Commodity Prices and Global Imbalances," NBER Working Papers 14521, National Bureau of Economic Research, Inc.
  4. Efraim Benmelech & Jennifer Dlugosz, 2010. "The Credit Rating Crisis," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 161-207 National Bureau of Economic Research, Inc.
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