New Thinking on the Financial Crisis

SMC Author

Roy Allen, Economics; Donald Snyder, Business Administration

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Multi

Document Type

Article

Publication Date

2009

Publication / Conference / Sponsorship

Critical Perspectives on International Business

Publisher/Venue

Emerald Group Publishing Limited

Description/Abstract

Purpose

– The purpose of this paper is to expand understanding of the current global financial crisis in light of other large‐scale financial crises.

Design/methodology/approach

– The phenomenon of large‐scale financial crisis has not been modeled well by neo‐classical general equilibrium approaches; the paper explores whether evolutionary and complex systems approaches might be more useful. Previous empirical work and current data are coalesced to identify fundamental drivers of the boom and bust phases of the current crisis.

Findings

– Many features of financial crisis occur naturally in evolutionary and complex systems. The boom phase leading to this current crisis (early 1980s through 2006) and bust phase (2007‐) are associated with structural changes in institutions, technologies, monetary processes, i.e. changing “meso structures”. Increasingly, purely financial constructs and processes are dominant infrastructures within the global economy.

Research limitations/implications

– Rigorous analytical predictions of financial crisis variables are at present not possible using evolutionary and complex systems approaches; however, such systems can be fruitfully studied through simulation methods and certain types of econometric modeling.

Practical implications

– Common patterns in large‐scale financial crises might be better anticipated and guarded against. Better money‐liquidity supply decisions on the part of official institutions might help prevent economy‐wide money‐liquidity crises from turning into systemic solvency crises.

Originality/value

– Scholars, policymakers, and practitioners might appreciate the more comprehensive evolutionary and complex systems framework and see that it suggests a new political economy of financial crisis. Despite a huge scholarly literature (organized recently as first‐ second‐ and third‐generation models of financial crises) and a flurry of topical essays in recent months, systemic understanding has been lacking.

Keywords

Recession, Financial markets, Money, Credit

Scholarly

yes

DOI

10.1108/17422040910938677

Volume

5

Issue

1/2

First Page

36

Last Page

55

Disciplines

Business | Business Administration, Management, and Operations | Economics

Original Citation

Allen, R. (2009). New Thinking on the Financial Crisis. Critical Perspectives on International Business

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