A Contribution to the Theory of Financial Fragility and Crisis

By: Bhaduri, Amit.

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BookSeries: wiiw Working Papers: 65Publisher: Wien : Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw), 2010Description: 18 S., 2 Figures, 30cm.Subject(s): capital gains | consumers' debt | debt-driven fluctuations | effective demand | financial fragility | liquidity preferenceCountries covered: non specificwiiw Research Areas: Macroeconomic Analysis and PolicyClassification: D84 | E12 | E21 | E32 | E41 | E44 | E51 | G12 | G18 | G24 | N22 Online resources: Click here to access online Summary: Three interrelated aspects typical of most financial crisis of domestic origin are brought together in a model in this paper. The first aspect is debt financed consumption boom supported by rising asset prices which ultimately leads to credit crunch and debt deflation as lenders lose confidence in borrowers. This is related to the second aspect tracing gradual evolution towards Ponzi finance. This is accompanied by fragility of the financial sector itself and its insolvency as an inevitable outcome of unregulated economic expansion. The paper concludes with comments on how these three aspects interact in the real world of possible extensions.

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Item type	Current library	Call number	Status	Date due	Barcode
Paper	WIIW Library	5.700/65 (Browse shelf(Opens below))	Available		1000010002128

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Three interrelated aspects typical of most financial crisis of domestic origin are brought together in a model in this paper. The first aspect is debt financed consumption boom supported by rising asset prices which ultimately leads to credit crunch and debt deflation as lenders lose confidence in borrowers. This is related to the second aspect tracing gradual evolution towards Ponzi finance. This is accompanied by fragility of the financial sector itself and its insolvency as an inevitable outcome of unregulated economic expansion. The paper concludes with comments on how these three aspects interact in the real world of possible extensions.

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