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New thinking on the financial crisis

Roy E. Allen (Saint Mary's College of California, Moraga, California, USA)
Donald Snyder (Saint Mary's College of California, Moraga, California, USA)

Critical Perspectives on International Business

ISSN: 1742-2043

Article publication date: 10 April 2009

7098

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

Citation

Allen, R.E. and Snyder, D. (2009), "New thinking on the financial crisis", Critical Perspectives on International Business, Vol. 5 No. 1/2, pp. 36-55. https://doi.org/10.1108/17422040910938677

Publisher

:

Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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