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THE FAILURE OF FINANCIAL MACROECONOMICS AND WHAT TO DO ABOUT IT
Author(s) -
CHATELAIN JEANBERNARD,
RALF KIRSTEN
Publication year - 2012
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2012.02327.x
Subject(s) - stylized fact , economics , bankruptcy , systemic risk , financial crisis , mainstream , asset (computer security) , financial market , monetary economics , macroeconomics , finance , philosophy , theology , computer security , computer science
The bargaining power of international banks is currently still very high as compared with what it was at the time of the Bretton Woods conference. As a consequence, systemic financial crises are likely to remain recurrent phenomena with large effects on macroeconomic aggregates. Mainstream macroeconomic models dealing with financial frictions failed to explain at least eight stylized facts of the ongoing crisis. We therefore suggest two complementary assumptions: (i) a systemic bankruptcy risk stable equilibrium may be feasible, and (ii) inefficient financial markets rarely ensure that the price of an asset is equal to its ‘fundamental long‐term value’.