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

Ostrup, Finn; Oxelheim, Lars LU and Wihlborg, Clas (2009) In Asian Economic Papers 8(3). p.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... (More)
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. One policy implication of our view is that various forms of financial rescue would be reduced in times of crisis if appropriate controls and safeguards were already in place. We draw on experiences from the financial crises in the Nordic countries at the end of the 1980s and the beginning of the 1990s. In particular, the Swedish model for crisis resolution, which has received attention during the current crisis, is discussed to illustrate the problems policymakers face in a financial crisis without appropriate institutions. We discuss European Union approaches to the current crisis before turning to policy implications from an emerging market perspective in the current crisis. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Asian Economic Papers
volume
8
issue
3
pages
178 - 220
publisher
MIT Press
external identifiers
  • wos:000270599000018
  • scopus:70350436515
ISSN
1535-3516
DOI
10.1162/asep.2009.8.3.178
language
English
LU publication?
yes
id
3f46e03e-69b4-4630-a5d0-3ffe6dd3e32c (old id 1507616)
date added to LUP
2009-11-20 11:34:00
date last changed
2017-07-23 03:55:25
@article{3f46e03e-69b4-4630-a5d0-3ffe6dd3e32c,
  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. One policy implication of our view is that various forms of financial rescue would be reduced in times of crisis if appropriate controls and safeguards were already in place. We draw on experiences from the financial crises in the Nordic countries at the end of the 1980s and the beginning of the 1990s. In particular, the Swedish model for crisis resolution, which has received attention during the current crisis, is discussed to illustrate the problems policymakers face in a financial crisis without appropriate institutions. We discuss European Union approaches to the current crisis before turning to policy implications from an emerging market perspective in the current crisis.},
  author       = {Ostrup, Finn and Oxelheim, Lars and Wihlborg, Clas},
  issn         = {1535-3516},
  language     = {eng},
  number       = {3},
  pages        = {178--220},
  publisher    = {MIT Press},
  series       = {Asian Economic Papers},
  title        = {Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises},
  url          = {http://dx.doi.org/10.1162/asep.2009.8.3.178},
  volume       = {8},
  year         = {2009},
}