Strengthening the Resilience of an Economy. Strategies to Prevent another Crisis

Karl Aiginger ()

No 338, WIFO Working Papers from WIFO

Abstract: The financial crisis has affected the real economy in stages yet nevertheless at an unexpected rate and with all regions being affected simultaneously. It advanced almost independently of the regions' exposure to the actual initial causes, among them the subprime crisis, innovative financial products, dubious microeconomic incentives, inefficient regulation and macroeconomic imbalances. The following analysis poses the question of how the national economic structures can be made more resilient to a shock (be it a financial crisis or another turbulence) and how economic policy can act in order to stabilise the economy before and after such a shock. This analysis supplements studies on the causes of the financial crisis, on proper macroeconomic responses in the crisis and reforms of the regulation on the national and international level. It enlarges the menu of the traditional instruments of economic stabilisation policy by combining them with structural policies. Measures in five policy areas are discussed which could be the nucleus of a more far reaching prevention of a further crisis. However, a resilient economy is not in itself a political goal; it is only a necessary condition to a successful growth and employment policy. Furthermore, economic policy to increase resilience against shocks should not contain any protectionist elements since these lead to losses in income and employment levels.

Keywords: financial crisis; business cycle; stabilisation policy; resilience (search for similar items in EconPapers)
Date: 2009-06-29
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Persistent link: http://EconPapers.repec.org/RePEc:wfo:wpaper:y:2009:i:338

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