|Generate QR code
Open Access
Subscription Access
The Financial Crisis and the Systemic Failure of Academic Economics
https://doi.org/10.32609/0042-8736-2010-6-10-25
Abstract
The authors of the article claim that the economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions. In their view, this lack of understanding is due to a misallocation of research efforts in economics. They trace the deeper roots of this failure to the professions insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in economic research, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.
About the Authors
D. Colander
Middlebury College
United States
United States
H. Follmer
Humboldt University Berlin
Germany
Germany
A. Haas
Potsdam Institute for Climate Impact Research
Germany
Germany
M. Goldberg
University of New Hampshire
United States
United States
K. Juselius
University of Copenhagen
Denmark
Denmark
A. Kirman
Université d'Aix-Marseille lll
France
France
T. Lux
University of Kiel; Kiel Institute for the World Economy
Germany
Germany
B. Sloth
University of Southern Denmark
Denmark
Denmark
References
1. Allen F., Babus A. Networks in Finance // Wharton Financial Institutions Center Working Paper. 2008. No 08-07. ssrn.com/abstract=1094883.
2. Anderson P. W. More is Different // Science. 1972. Vol. 177. P. 393-396.
3. Aoki M., Yoshikawa H. Reconstructing Macroeconomics: A Perspective from Statistical Physics and Combinatorial Stochastic Processes. Cambridge, N. Y.: Cambridge University Press, 2007.
4. Bagehot W. Lombard Street: A Description of the Money Market. L.: Henry S. King and Co., 1873.
5. Banerjee A. A Simple Model of Herd Behaviour // Quarterly Journal of Economics. 1992. Vol. 107, No 3. P. 797-817.
6. Boesch F. T., Harary F., Kabell J. A. Graphs as Models of Communication Network Vulnerability: Connectivity and Persistence // Networks. 2006. No 11. P. 57-63.
7. Chamle C. P. Rational Herds: Economic Models of Social Learning. Cambridge: Cambridge University Press, 2002.
8. Coates J. M., Herber J. Endogenous Steroids and Financial Risk Taking on a London Trading Floor // Proceedings of the National Academy of Sciences. 2008. Vol. 105, No 16. P. 6167-6172.
9. Cogley T., Sargent T. The Market Price of Risk and the Equity Premium: A Legacy of the Great Depression? // Journal of Monetary Economics. 2008. Vol. 55, No 3. P. 454-476.
10. Criado R., Flores J., Hernández-Bermejo B., Pello J., Romance M. Effective Measurement of Network Vulnerability Under Random and Intentional Attacks // Journal of Mathematical Modelling and Algorithms. 2005. No 4. P. 307-316.
11. Eichengreen B. Origins and Responses to the Crisis. Unpublished manuscript. Berkeley: University of California, 2008. http://emlab.berkeley.edu/users/webfac/eichengreen/e183_sp07/origins_responses.pdf.
12. Föllmer H. Financial Uncertainty, Risk Measures and Robust Preferences // Aspects of Mathematical Finance / M. Yor (ed.). Berlin: Springer, 2008.
13. Friedman J. Exploratory Projection Pursuit // Journal of the American Statistical Association. 1987. Vol. 82. P. 249-266.
14. Hellwig M. F. Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis // MPI Collective Goods Preprint. 2008. No 2008/43.
15. Hendry D. F. Dynamic Econometrics. Oxford: Oxford University Press, 1995; Hendry D. The Methodology of Empirical Econometric Modelling: Applied Econometrics Through the Looking-Glass // Palgrave Handbook of Econometrics. Vol. 2. L.: Palgrave, 2009.
16. Hendry D. F., Krolzig H.-M. The Properties of Automatic Gets Modelling // Economic Journal. 2005. Vol. 115. Р. 32-61.
17. Hoover K., Johansen S., Juselius K. Allowing the Data to Speak Freely: The Macroeconometrics of the Сointegrated Vector Autoregression // American Economic Review. 2008. Vol. 98, No 2. P. 251-255.
18. Juselius K. The Сointegrated VAR Model: Econometric Methodology and Empirical Applications. Oxford: Oxford University Press, 2006.
19. Juselius K., Franchi M. Taking a DSGE Model to the Data Meaningfully // Economics: The Open-Access, Open-Assessment E-Journal. 2007. Vol. 4.
20. Kindleberger C. P. Manias, Panics, and Crashes: A History of Financial Crises. L.: MacMillan, 1989.
21. Krahnen J.-P. Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes // Perspektiven der Wirtschaftspolitik. 2005. Bd. 6, Hf. 4. S. 499-519.
22. Krahnen J.-P., Wilde C. Risk Transfer with CDOs and Systemic Risk in Banking // WP No 2006-04. Frankfurt: Center for Financial Studies, 2006.
23. Leijonhufvud A. Macroeconomic Instability and Coordination: Selected Essays. Cheltenham: Edward Elgar, 2000.
24. Lo A., Repin D. V., Steenbarger B. N. Fear and Greed in Financial Markets: A Clinical Study of Day-Traders // American Economic Review. 2005. Vol. 95, No 2. P. 352-359.
25. Lux T. Stochastic Behavioral Asset Pricing Models and the Stylized Facts // Handbook of Financial Markets: Dynamics and Evolution / T. Hens, K. Schenk-Hoppé (eds.). Amsterdam: North-Holland, 2009. P. 161-215.
26. Lux, T., Westerhof F. Economics crisis // Nature Physics. 2009. Vol. 5. P. 2-3.
27. Minsky H. P. Stabilizing an Unstable Economy. New Haven: Yale University Press, 1986.
28. Rajan U., Seru A., Vig V. The Failure of Models that Predict Failure: Distance, Incentives and Defaults // Chicago GSB Research Paper. 2008. No 08-19.
29. Reinhart C., Rogoff K. This Time is Different: A Panoramic View of Eight Centuries of Financial Crises. Manuscript / Harvard University, NBER. 2008.
30. Scheinkman J., Woodford M. Self-Organized Criticality and Economic Fluctuations // American Economic Review. 1994. Vol. 84. P. 417-421 (Papers and Proceedings).
Review
For citations:
Colander D., Follmer H., Haas A., Goldberg M., Juselius K., Kirman A., Lux T., Sloth B. The Financial Crisis and the Systemic Failure of Academic Economics. Voprosy Ekonomiki. 2010;(6):10-25. (In Russ.) https://doi.org/10.32609/0042-8736-2010-6-10-25
Views:
762
Email this article 
