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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.

Suggested Citation

  • Fernandez-Pol, Eduardo, 2010. "The Financial Crisis 2007-08 and Causality: A Hicksian Perspective," Economics Working Papers wp10-03, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp10-03

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    References listed on IDEAS

    1. Emmanuel Farhi & Ricardo Caballero & Pierre-Olivier Gourinchas, "undated". "Financial Crash, Commodity Prices and Global Imbalances," Working Paper 20933, Harvard University OpenScholar.
    2. 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, March.
    3. 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.
    4. Heckman, James, 2003. "Conditioning, causality and policy analysis," Journal of Econometrics, Elsevier, vol. 112(1), pages 73-78, January.
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    More about this item


    Financial crisis 2007-08; causality analysis; Hicksian methodology; separable causes;

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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