Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises

Finn Østrup, Lars Oxelheim and Clas Wihlborg
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Finn Østrup: Copenhagen Business School, Solbjergvej 3, 2000, Frederiksberg, Denmark.
Lars Oxelheim: Lund University, Lund and Institute for Economic Research, P.O. Box 7080, S-220 07, Sweden. and The Research Institute of Industrial Economics, P.O. Box 55665, 102 15 Stockholm, Sweden.
Clas Wihlborg: Chapman University, One University Drive, Orange, CA 92866, USA; and Copenhagen Business School, Department of Finance, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark.

Asian Economic Papers, 2009, vol. 8, issue 3, pages 178-220

Abstract: Since July 2007, the world economy has experienced a severe financial crisis that originated in the U.S. housing market. Subsequently, the crisis has spread to financial sectors in European and Asian economies and led to a severe worldwide recession. The existing literature on financial crises rarely distinguishes between factors that create the original strain on the financial sector and factors that explain why these strains lead to system-wide contagion and a possible credit crunch. Most of the literature on financial crises refers to factors that cause an original disruption in the financial system. We argue that a financial crisis with its contagion within the system is caused by failures of legal, regulatory, and political institutions. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Date: 2009

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