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Tuckett argues that most economists' explanations of the financial crisis miss its essence; they ignore critical components of human psychology. He offers a deeper understanding of financial market behaviour and investment processes by recognizing the role played by unconscious needs and fears in all investment activity.
This book explores the potential and problems of bank safety and efficiency arising from the rapidly growing area of cross-border banking in the form of branches or subsidiaries with primarily only national prudential regulation. There are likely to be differences in the treatment of the same bank operating in different countries or of different banks from different home countries operating in the same country with respect to deposit insurance provisions, declaration of insolvency, resolution of insolvencies, and lender of last resort protection. The book identifies these protection problems and discusses possible solutions, such as greater cross-border cooperation, harmonization and organizations.The contributors to this book include experts from different countries and from a wide range of affiliations, including academia, regulators, practitioners, and international organizations.
Financial soundness indicators (FSIs) are methodological tools that help quantify and qualify the soundness and vulnerabilities of financial systems according to five areas of interests: capital adequacy, asset quality, earnings, liquidity, and sensitivity to market risk. With support from the Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Facility, this report describes the development of FSIs for Viet Nam and analyzes the stability and soundness of the Vietnamese banking system by using these indicators. The key challenges to comprehensively implementing reforms and convincingly addressing the root causes of the banking sector problems include (i) assessing banks' recapitalization needs, (ii) revising classification criteria to guide resolution options, (iii) recapitalization and restructuring that may include foreign partnerships, (iv) strengthening the Vietnam Asset Management Company, (v) developing additional options to deal with nonperforming loans, (vi) tightening supervision to ensure a sound lending practice, (vii) revamping the architecture and procedures for crisis management, and (viii) strengthening financial safety nets during the reform process.
“Mr. Minsky long argued markets were crisis prone. His 'moment' has arrived.” -The Wall Street Journal In his seminal work, Minsky presents his groundbreaking financial theory of investment, one that is startlingly relevant today. He explains why the American economy has experienced periods of debilitating inflation, rising unemployment, and marked slowdowns-and why the economy is now undergoing a credit crisis that he foresaw. Stabilizing an Unstable Economy covers: The natural inclination of complex, capitalist economies toward instability Booms and busts as unavoidable results of high-risk lending practices “Speculative finance” and its effect on investment and asset prices Government's role in bolstering consumption during times of high unemployment The need to increase Federal Reserve oversight of banks Henry Kaufman, president, Henry Kaufman & Company, Inc., places Minsky's prescient ideas in the context of today's financial markets and institutions in a fascinating new preface. Two of Minsky's colleagues, Dimitri B. Papadimitriou, Ph.D. and president, The Levy Economics Institute of Bard College, and L. Randall Wray, Ph.D. and a senior scholar at the Institute, also weigh in on Minsky's present relevance in today's economic scene in a new introduction. A surge of interest in and respect for Hyman Minsky's ideas pervades Wall Street, as top economic thinkers and financial writers have started using the phrase “Minsky moment” to describe America's turbulent economy. There has never been a more appropriate time to read this classic of economic theory.
This book assesses the 2008-2009 financial crisis and its ramifications for the global economy from a multidisciplinary perspective. Current market conditions and systemic issues pose a risk to financial stability and sustained market access for emerging market borrowers. The volatile environment in the financial system became the source of major threats and some opportunities such as takeovers, mergers and acquisitions for international business operations. This volume is divided into six sections. The first evaluates the 2008-2009 Global Financial Crisis and its impacts on Global Economic Activity, examining the financial crisis in historical context, the economic slowdown, transmission of the crisis from advanced economies to emerging markets, and spillovers. The second section evaluates global imbalances, especially financial instability and the economic outlook for selected regional economies, while the third focuses on international financial institutions and fiscal policy applications. The fourth section analyzes the capital market mechanism, price fluctuations and global trade activity, while the fifth builds on new trends and business cycles to derive effective strategies and solutions for international entrepreneurship and business. In closing, the final section explores the road to economic recovery and stability by assessing the current outlook and fiscal strategies.
Eric Barthalon applies the neglected theory of psychological time and memory decay of Nobel Prize–winning economist Maurice Allais (1911–2010) to model investors' psychology in the present context of recurrent financial crises. Shaped by the behavior of the demand for money during episodes of hyperinflation, Allais's theory suggests economic agents perceive the flow of clocks' time and forget the past at a context-dependent pace: rapidly in the presence of persistent and accelerating inflation and slowly in the event of the opposite situation. Barthalon recasts Allais's work as a general theory of "expectations" under uncertainty, narrowing the gap between economic theory and investors' behavior. Barthalon extends Allais's theory to the field of financial instability, demonstrating its relevance to nominal interest rates in a variety of empirical scenarios and the positive nonlinear feedback that exists between asset price inflation and the demand for risky assets. Reviewing the works of the leading protagonists in the expectations controversy, Barthalon exposes the limitations of adaptive and rational expectations models and, by means of the perceived risk of loss, calls attention to the speculative bubbles that lacked the positive displacement discussed in Kindleberger's model of financial crises. He ultimately extrapolates Allaisian theory into a pragmatic approach to investor behavior and the natural instability of financial markets. He concludes with the policy implications for governments and regulators. Balanced and coherent, this book will be invaluable to researchers working in macreconomics, financial economics, behavioral finance, decision theory, and the history of economic thought.
Risks and uncertainties?market, financial, operational, social, humanitarian, environmental, and institutional?are the inherent realities of the modern world. Stock market crashes, demonetization of currency, and climate change constitute just a few examples that can adversely impact financial institutions across the globe. To mitigate these risks and avoid a financial crisis, a better understanding of how the economy responds to uncertainties is needed. Maintaining Financial Stability in Times of Risk and Uncertainty is an essential reference source that discusses how risks and uncertainties affect the financial stability and security of individuals and institutions, as well as probable solutions to mitigate risk and achieve financial resilience under uncertainty. Featuring research on topics such as financial fraud, insurance ombudsman, and Knightian uncertainty, this book is developed for researchers, academicians, policymakers, students, and scholars.
This important new book from a group of Keynesian, but nonetheless technically-oriented economists explores one of the dominant paradigms in financial economics: the ‘intertemporal general equilibrium approach’.
This open access book gives a concise introduction to the practical implementation of monetary policy by modern central banks. It describes the conventional instruments used in advanced economies and the unconventional instruments that have been widely adopted since the financial crisis of 2007–2008. Illuminating the role of central banks in ensuring financial stability and as last resort lenders, it also offers an overview of the international monetary framework. A flow-of-funds framework is used throughout to capture this essential dimension in a consistent and unifying manner, providing a unique and accessible resource on central banking and monetary policy, and its integration with financial stability. Addressed to professionals as well as bachelors and masters students of economics, this book is suitable for a course on economic policy. Useful prerequisites include at least a general idea of the economic institutions of an economy, and knowledge of macroeconomics and monetary economics, but readers need not be familiar with any specific macroeconomic models.
This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.