A Critical survey on four distinctive approaches over the causes of the recent global crisis

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2013
Düzçay, Güney
This thesis aims to comprehend the causes of the global crisis of 2007/08 in a coherent way by elaborating on four distinctive approaches over the causes of the crisis. These approaches consist of financial system-related explanations, in which innovations, regulatory problems and incentives problem are focused on; monetary-policy-based explanations; global-imbalances-based explanations; and finally long-term structural-problems-based explanations. The main findings of this thesis are as follows. Financial innovations, regulation and supervision failures, and incentive problems explain much of the characteristics of the crisis. The depth of the financial crisis was related with system-wide leverage, excessive risk-accumulation and unleashing of self-reinforcing mechanisms of finance by three-decade long financial liberalization. Deep recession and subsequent stagnation can be related to effects of the financial crisis on financial and household sectors’ balance-sheets and declining profit rates as a consequence of the structural problems of the US capitalism. On the other hand, monetary policy stance of the Federal Reserve does not seem as effective on credit boom determinants during the 2000s. Finally, global-imbalances-explanation of the crisis misinterprets the possible international sources of the crisis by exaggerating the role of developing countries in global financing patterns.
Citation Formats
G. Düzçay, “A Critical survey on four distinctive approaches over the causes of the recent global crisis,” M.S. - Master of Science, Middle East Technical University, 2013.