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Subprime and euro crisis: Should we blame the economists?

Peter Spahn ()

No 83-2013, FZID Discussion Papers from University of Hohenheim, Center for Research on Innovation and Services (FZID)

Abstract: Economists in the public are accused of propagating highly professional, but unrealistic theories that mislead market agents and policy makers to place too much confidence in rational behaviour and market equilibrium. The paper analyses to what extent the US banking crisis and the euro crisis can be ascribed to fallacious assessments and recommendations on the part of economic theory. In the first case, myopic financial market theory and practice had neglected systemic repercussions of micro bank trading patterns. The euro crisis emerged from the neglect of undergraduate economic wisdom of necessary adjustment mechanisms in a currency union. Economists hopefully misinterpreted current account deficits as a sign of structural change.

Keywords: Efficient Market Hypothesis; rational behaviour; banking crisis; New Keynesian model; intertemporal optimisation; euro crisis (search for similar items in EconPapers)
JEL-codes: F33 G20 N10 N20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-hpe
Date: 2013
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:fziddp:832013

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