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Explaining Financial Crises

By: Material type: TextTextSeries: Hohenheimer volkswirtschaftliche Schriften ; 53Publisher: Bern Peter Lang International Academic Publishers 2018Description: 1 online resource (430 pages)Content type:
  • text
Media type:
  • computer
Carrier type:
  • online resource
Other title:
  • A Cyclical Approach
Subject(s): Online resources: Summary: This book develops a new theoretical approach to the explanation of systemic financial crises in industrial and emerging market countries. In contrast to standard models, the present <I>cyclical</I> approach is consistent with the following three stylized facts. Firstly, systemic financial crises are a recurrent phenomenon generally accompanied by excessive boom-bust cycles. Secondly, the frequency of financial crisis cycles is very irregular. Thirdly, most financial crisis cycles are initiated by positive shocks to profit expectations which induce an unsustainable build-up of financial fragility driven by <I>irrational exuberance</I>. The present approach is based on a sophisticated balancesheet structure with many assets, as well as on an expectation formation scheme which combines the rational expectations hypothesis with Keynes’ <I>Beauty Contest Theory</I>.
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This book develops a new theoretical approach to the explanation of systemic financial crises in industrial and emerging market countries. In contrast to standard models, the present <I>cyclical</I> approach is consistent with the following three stylized facts. Firstly, systemic financial crises are a recurrent phenomenon generally accompanied by excessive boom-bust cycles. Secondly, the frequency of financial crisis cycles is very irregular. Thirdly, most financial crisis cycles are initiated by positive shocks to profit expectations which induce an unsustainable build-up of financial fragility driven by <I>irrational exuberance</I>. The present approach is based on a sophisticated balancesheet structure with many assets, as well as on an expectation formation scheme which combines the rational expectations hypothesis with Keynes’ <I>Beauty Contest Theory</I>.

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