Explaining Financial Crises A Cyclical Approach

• Main Author: Radke, Marc Peter (auth)
• Format: Electronic Book Chapter
• Language: English
• Published: Bern Peter Lang International Academic Publishing Group 2018
• Series: Hohenheimer volkswirtschaftliche Schriften
• Subjects: Economic theory & philosophy; Monetary economics; Approach; Beauty Contest Theory; Crises; Cyclical; Explaining; Financial; Financial Crises; Financial Stability; Long-Run Rationality; Radke; Theorie; Währungskrise
• Online Access: DOAB: download the publication; DOAB: description of the publication

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>.