Towards a New Paradigm: Stabilizing Financial Markets

By Moritz Schularick and Kaspar Zimmermann, University of Bonn

 

In their basic study for the Forum New Economy Schularick and Zimmerman show how the old paradigm based on the hypothesis of ever efficient financial markets failed. Traders in reality periodically misprice fundamental risks which leads to the conclusion that stronger buffers are needed to make the financial system resilient to asset price fluctuations.

 

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