Financial crises and the perils for the world economy
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Published:
Jun 22, 2020
Keywords:
financial crises, instability, world economy, financial cycle, Minsky
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Abstract
In this paper, we wish to address the issue of financial crises. We focus on the causes and implications for the world economy and financial stability. For this reason, we attempt to identify the relative phenomena that encourage the emergence of financial crises. The amplification of the financial sector at the international level and the high degree of financial integration render the debate of financial crises solemnly significant. The world economy has become unstable and vulnerable to the emer- gence of unanticipated financial events. Such events are not simply limited to a large bank default but also to the inability of a multinational firm or an agent to validate their debts. Thus, we mainly emphasize the insights of Hyman Minsky into the global financial crisis, who suggested that the flaws of the current dominant financial status would eventually entail instability and probably lead to crises with contagion effects at the international level. Therefore, the aim of this paper is to indi- cate that the perils of financial crises for the global economy must be perceptible and considerable ex ante in order to be successfully confronted.
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Zachariadis, S. . (2020). Financial crises and the perils for the world economy. Journal of Management and Financial Sciences, (40), 43–56. https://doi.org/10.33119/JMFS.2020.40.3
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References
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2. Borio, C. (2014). The international monetary and financial system: its Achilles heel and what to do about it. BIS Working Paper, No. 456, BIS.
3. Citanna, A., Schmedders, K. (2005). Excess price volatility and financial innovation. Arti- cle in Economic Theory, No. 26(3), pp. 559-587.
4. Chote, R. (1998). Financial Crises and Asia. Centre for Economic Policy Research, Financial Crises and Asia, CEPR, Conference Report No. 6.
5. Eichengreen, B, Arteta, C. (2000). Banking crises in emerging markets: presumptions and evidence. Center for International and Development Economics Research, Working Paper, C00-11.
6. Frenkel, R. (2003). Globalization and financial crises in Latin America. CEPAL Review, No. 80, pp. 41-54.
7. Greenspan, A. (1998, September 23). The crisis in emerging market economies. Testimony of Chairman Alan Greenspan Before the Committee on the Budget, U.S. Senate, The Federal Reserve Board.
8. Hart, O.D. (1975, December). On the optimality of equilibrium when the market structure is incomplete. Journal of Economic Theory, Vol. 11, Iss. 3, pp. 418-443.
9. Keynes, J.M. (1980). Activities 1940-1944, Shaping the Post-War World: The Clearing Union. The Collected Writings of John Maynard Keynes, Royal Economic Society, Vol. XXV. London: MacMillan and Cambridge University Press.
10. Kindleberger, C.P., Aliber, R. (2005). Manias, Panics, and Crashes. New Jersey: John Wiley & Sons.
11. Krugman, P. (1998). What happened to Asia? Mimeo. Cambridge, MA: Department of Eco- nomics, Massachusetts Institute of Technology.
12. Mastromatteo, G. Esposito, L. (2016). Minsky at Basel: A Global Cap to Build an Effective Post crisis Banking Supervision Framework. The Jerome Levy Economics Institute of Bard College, Working Paper No. 875, September 1992.
13. McKinnon, R.I., Pill, H.l (1997). Credible economic liberalizations and overborrowing. American Economic Review, No. 87(2), pp. 189-193.
14. Minsky, H.P. (1975). John Maynard Keynes. New York: Columbia University Press.
15. Minsky, H.P. (1986a). Stabilizing an Unstable Economy. New Haven: Yale University Press.
16. Minsky, H.P. (1986b). Where is the Cash Flow? Bard Digital Commons, Hyman P. Minsky Archive. Open access submission year 1986. Retrieved from: https://digitalcommons.bard. edu/hm_archive/98.
17. Minsky H.P. (1990). Schumpeter: finance and evolution. [In:] A. Heertje, M. Perlman (Eds.). Evolving Market Technology and Market Structure: Studies in Schumpeterian Economics. Ann Arbor: The University of Michigan Press.
18. Minsky, H.P. (1991). Financial crisis: Systemic or Idiosyncratic. The Jerome Levy Economics Institute of Bard College, Working Paper No. 51, pp. 2-29.
19. Minsky, H.P. (1992). The Financial Instability Hypothesis. The Jerome Levy Economics Institute of Bard College, Working Paper No. 74, pp. 1-9.
20. Minsky, H.P. (1993). Finance and Stability: The limits of Capitalism. Levy Economics Institute of Bard College, Bard Digital Commons, WP 93.
21. Mr. Greenspan draws lessons from the global crises of 1997 and 1998 (1999). Chairman of the Board of Governors of the US Federal Reserve System, before the World Bank Group and the International Monetary Fund, Program of Seminars, Washington, D.C., on 27 September 1999. BIS Review 101/1999, pp. 1-5.
22. Peterson, W.C. (1977). Institutionalism, Keynes and the real world. Journal of Economic Issues, No. 11 (2), pp. 201-221.
23. Sau, L. (2013). Instability and Crisis in Financial Complex Systems. Review of Political Economy, Universita degli Studi di Torino, pp. 1-14
24. Schumpeter, J.A. (1934). Theory of Economic Development. Cambridge: Mass. Harvard Uni- versity Press.
25. Stiglitz, J. (2018, September). Ten Years Later. Roosevelt Institute Working Paper, pp. 1-23.
26. The Federal Reserve Board (1998, March 3), The current Asian crisis. Testimony of Chair- man Alan Greenspan, Before the Subcommittee on Foreign Operations of the Committee on Appropriations.
27. The Federal Reserve Board (1998, January 30), The current Asia crisis and the dynamics of international finance, Testimony of Chairman Alan Greenspan, Before the Committee on Banking and Financial Services, U.S. House of Representatives.
28. Whalen, J.C. (2009). An Institutionalist Perspective on the Global Financial Crisis. New York: Cornell University, pp. 1-23
29. World Bank (1997). World Bank Annual report 1997. International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Washington DC: World Bank Publications.
30. Wray, R., Mazzucato, M. (2015). Financing the Capital Development of the Economy: A Keynes- Schumpeter-Minsky Synthesis. Levy Economics Institute of Bard College Working Paper No. 837.