Theories of finance and financial crisis: Lessons for the Great Recession

This paper presents an overview of different models which explain financial crises, with the aim of understanding economic developments during and possibly after the Great Recession. In the first part approaches based on efficient markets and rational expectations hypotheses are analyzed, which however do not give any explanation for the occurrence of financial crises and thus cannot suggest any remedies for the present situation. A broad range of theoretical approaches analyzing financial crises from a medium term perspective is then discussed. Within this group we focused on the insights of Marx, Schumpeter, Wicksell, Hayek, Fisher, Keynes, Minsky, and Kindleberger. Subsequently the contributions of the Regulation School, the approach of Social Structures of Accumulation and Post-Keynesian approach, which focus on long-term developments and regime shifts in capitalist development, are presented. International approaches to finance and financial crises are integrated into the analyses. We address the issue of relevance of all these theories for the present crisis and draw some policy implications. The paper has the aim to find out to which extent the different approaches are able to explain the Great Recession, what visions they develop about future development of capitalism and to which extent these different approaches can be synthesized

Previous financial crises leading to stagnation: Selected case studies

This paper analyses several severe financial crises observed in the history of capitalism which led to a longer period of stagnation or low growth. Comparative case studies of the Great Depression, the Latin American debt crisis of the 1980s and the Japanese crisis of the 1990s and 2000s are presented. The following questions are asked: What triggered big financial crises? Which factors intensified financial crises? And most importantly, which factors prevented the return of prosperity for a long time? The main conclusion is that stagnation after big financial crises becomes likely when the balance sheets of economic units are not quickly cleaned, when the nominal wage anchor breaks, and when there is no big and longer growth stimulus by the state. Some tentative conclusions for the subprime financial crisis and the Great Recession are drawn

Financialisation, distribution, growth and crises: Long-run tendencies

In this paper we review the empirical and theoretical literature on the effects of changes in the relationship between the financial sector and the non-financial sectors of the economy associated with 'financialisation' on distribution, growth, instability and crises. We take a macroeconomic perspective and examine four channels of transmission of financialisation to the macroeconomy: first, the effect on income distribution, second, the effects on investment in capital stock, third, the effects on household debt and consumption, and fourth, the effects on net exports and current account balances. For each of these channels we briefly review some empirical and econometric literature supporting the presumed channels, some theoretical and modelling literature examining the macroeconomic effects via these channels, and finally, we present small models generating the most important macroeconomic effects. We show that, against the background of redistribution of income at the expense of the labour income share and depressed investment in capital stock, each a major feature of financialisation, short- to medium-run dynamic 'profits without investment' regimes may emerge, which can be driven by flourishing consumption demand or by rising export surpluses, compensating for low or falling investment in capital stock. However, each type of these regimes, the 'debt-led consumption boom' type and the 'export-led mercantilist' type, contains internal contradictions, with respect to household debt in the first regime and with respect to foreign debt of the counterpart current account deficit countries in the second regime, which finally undermine the sustainability of these regimes and lead to financial and economic crises

EU policies addressing current account imbalances in the EMU: An assessment

To handle the sovereign debt crisis in general and macroeconomic imbalances in particular the leading EU institutions (the Troika) adopted two broad approaches: The short-term approach is based on enhancing the Stability and Growth Pact and to imposing fiscal austerity on crisis countries. The medium- to long-term strategy consists of internal devaluation via reducing wage costs. Both approaches were combined with structural adjustment programs in the spirit of the Washington Consensus. The Troika's policy implies an asymmetric adjustment process burdening only crisis countries. This led to the shrinking of demand and output in crisis countries comparable to the Great Depression and brought the European Monetary Union to the edge of deflation. Such polices increase the risk of Japan-style deflation with more than one lost decade

Financialisation and the financial and economic crises: Theoretical framework and empirical analysis for 15 countries

This paper analyses the long-run effects of financialisation and of the recent financial and economic crises for 15 countries. In order to provide a theoretical framework, we first outline three types of regimes under the conditions of financialisation, namely a debtled private demand boom, an export-led mercantilist, and a domestic demand-led regime. We then take a look at the sectoral financial balances of the main macroeconomic sectors and at the growth contributions of the demand aggregates for each of the 15 countries, focusing in particular on the trade cycle before the crises. This enables us to cluster these countries according to the typology of regimes and describe the development dynamics among various groups, which were complementary and often mutually reinforcing, in the years leading up to the crises. Subsequently, we focus on the period following the outbreak of the crises and, by considering transmission mechanisms and main obstacles to recovery, analyse how countries in each of these clusters were affected. Finally, we focus on the regime shifts which have taken place in the course of the crises and we discuss the implications of these recent developments for the world economy

Financial, economic and social systems: French Regulation School, Social Structures of Accumulation and Post-Keynesian approaches compared

This paper surveys some of the important literatures on financial, economic and social systems with an eye towards explaining the tendencies towards 'financialisation'. We focus on important strands of this literature: the French Regulation School, the US-based Social Structures of Accumulation approach, the contributions by several Post-Keynesian authors, with a focus on the long-run views contained in Hyman Minsky's work, in particular. In our comparative assessment of these approaches, we adopt the following four steps procedure: First, we sketch the basic structure of the approaches in order to single out how each of them views the interaction between social institutions and the economy and the related dynamics regarding the development of the institutional structure and the associated stages or regimes of economic development. Second, we describe how these approaches view the structural breaks or the regime shifts in the long-run development of modern capitalism, which has triggered or at least has contributed to the emergence of a type of capitalism dominated by finance (financialisation). Third, we outline how these different approaches view the main characteristics and features of financialisation. Fourth, we deal with the respective views on the consequences of financialisation for long-run economic and social development including the crisis of this stage of development

Alkaline phosphatase isoenzymes in children with respiratory disease

Cilj: Prikazati elektroforetsku sliku izoenzima ALP u serumu dojenčadi i djece koja su u tijeku akutne respiracijske bolesti imala povećanu ukupnu katalitičku aktivnost ALP. Ispitanici i metode: Prikazani su rezultati u 21 djeteta (od toga 17 dojenčadi), 8 djevojčica i 13 dječaka, u dobi od 2 mjeseca do 8 godina, hospitaliziranih zbog respiracijskih bolesti. U serumu djece određena je ukupna katalitička aktivnost ALP i provedeno elektroforetsko razdvajanje izoenzima ALP. Rezultati: Osmoro djece (38,1%) je u tijeku hospitalizacije imalo povećanu ukupnu katalitičku aktivnost ALP (raspon od 528 do 5622 U/L). Tipičnu sliku benigne prolazne hiperfosfatazemije, koja podrazumijeva pojavu brze anodne frakcije (brža od jetrene frakcije) i tzv. katodne frakcije (brža od koštane frakcije), imalo je petero djece. Izoenzim nalik placentalnom izoenzimu izdvojio se u dvoje djece. Izraženu koštanu frakciju, ali i frakciju nalik placentalnoj imalo je dijete s rahitisom. Predjetreni oblik ALP otkriven je kod dvoje djece, a jetreni izoenzim u jednog djeteta. Zaključak: Akutna respiracijska bolest u dojenčadi i djece može imati za posljedicu prolazno povećanje katalitičke aktivnosti ALP odnosno pojavu različitih izoenzimskih vrpca, primjerice brze anodne i tzv. katodne frakcije (kod prolazne hiperfosfatazemije), predjetrene frakcije i frakcije koja odgovara placentalnom izoenzimu. Prolazna hiperfosfatazemija se dokazuje nakon što se ukupna aktivnost ALP značajno smanji odnosno vrati u referentne raspone unutar 3-4 mjeseca. U tom slučaju daljnje analize nisu potrebne.Aim: To present the electrophoretic pattern of alkaline phosphatase (ALP) isoenzymes in serum of infants and children exhibiting increased total ALP catalytic activity in the course of acute respiratory disease. Subjects and methods: Results obtained in 21 children (17 of them infants), including 13 male and eight female children aged 2 months to 8 years, hospitalized for respiratory diseases are presented. Total ALP catalytic activity was determined and electrophoretic separation of ALP isoenzymes was performed in children\u27s sera. Results: Increased total ALP catalytic activity (range, 528-5622 U/L) during hospital stay was recorded in eight (38.1%) children. A typical picture of be-nign transient hyperphosphatasemia (TH), which implies the occurrence of fast anodal fraction (faster than hepatic fraction) and near-cathode fraction (faster than bone fraction), was recorded in five children. The placental-like isoenzyme was detected in two children. Expression of bone fraction and placental-like fraction was recorded in a rachitic child. Prehepatic ALP was expressed in two children, and hepatic ALP isoenzyme in one child. Conclusion: Acute respiratory disease in infants and children may entail transient increase in the ALP catalytic activity with the occurrence of various isoenzyme bands such as fast anodal and near-cathode fraction (in TH), prehepatic fraction and placental-like fraction. TH is verified when total ALP activity has decreased and returned to reference intervals. In this case, no additional testing is required