More than a decade after the financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.
The 2008 Global Financial Crisis was the worst economic crisis since the Great Depression and the world still suffers from systemic financial instability.
What Went Wrong
The efficient market hypothesis stipulated that bubbles could not exist and that the market is the best disciplining device.
New Economy in Progress
A better financial system needs to counter herding, booms and busts and the inherent tendency towards instability.
5 WAYS THAT ARE DISCUSSED TO REMAKE FINANCE
Macro-prudential regulation such as caps on loan-to-value or debt-to-income ratios to lower systemic risk.
Higher bank capital ratios to reduce leverage levels and the risk of bank collapses.
Countercyclical capital buffers to reduce the procyclicality of the financial system.
Financial transaction tax to reduce unnecessary or destabilising financial activity.
A new version of the Bretton Woods System, which shaped the post-war era.
FINANCIAL CRISES IN ADVANCED ECONOMIES, 1870-2015
Book presentation: How companies can deliver both purpose and profit
Alex Edmans, finance professor at LBS, argues that companies should be run with the primary purpose of creating value for society (and profits secondary) and provides evidence that this is more profitable in the long run. Jointly with ESMT Berlin, we have invited him to present his 2020 book and to discuss how companies can best serve society.
On climate, jobs and financial stability: Towards a new mandate for central banks?
Whether the ECB needs a new mandate was discussed on the VIII. New Paradigm Workshop by Isabel Schnabel, Adam Tooze, Moritz Schularick, and Laurence Tubiana.
Joint call for 21st Century Central Banking
New Economy Short Cut & INET Debt Talk – Who’s Afraid of European Banks?
Join us for our ninth edition of the New Economy Short Cut, this time in partnership with the Institute for New Economic Thinking. With Martin Arnold, Elena Carletti and Richard Vague; moderated by Thomas Fricke and Moritz Schularick
The Conflict of Interest on the Financial Market in Europe
How far can policymakers stretch the mandate of the ECB? Right now the central bank seems to be the institution burdened with organizing European solidarity. Erik Jones gives a detailed look into the current developments and explains how the banking sector functions.
IfW Kiel on the EU Financial Transaction Tax: “Instrument suitable, proposed implementation flawed”
According to a recent German-French proposal, a financial market transaction tax (FTT) on the purchase of securities is to be introduced in 10 EU countries. In their study, the authors of the Kiel institute for the world economy compare this proposal in an international perspective and develop policy recommendations.
Book presentation: Between debt and the devil
Towards a New Paradigm: Stabilizing Financial Markets
By Moritz Schularick and Kaspar Zimmermann, University of Bonn
OTHER MAIN TOPICS
After decades of overly naive market belief, we urgently need new answers to the great challenges of our time. More so, we need a whole new paradigm to guide us. We collect everything about the people and the community who are dealing with the question of a new paradigm and who analyze the historical and present impact of paradigms and narratives – whether in new contributions, performances, books and events.
the role of
THE ROLE OF
For decades, there was a consensus that reducing the role of the state and cutting public debt would generate wealth. This contributed to a chronic underinvestment in education and public infrastructure. New research focuses on establishing when and how governments need to intervene to better contribute to long-term prosperity and to stabilize rather than aggravate economic fluctuations.
During the high point of market orthodoxy, economists argued that the most 'efficient' way to combat climate change was to simply let markets determine the price of carbon emissions. Today, there is a growing consensus that prices need to be regulated and that a carbon price on its own might not be enough.
The rising gap between rich and poor has become a threat to social cohesion in most rich countries. To reverse this trend it will be crucial to better understand the importance of different drivers of income and wealth inequality.
Do we need a whole new understanding of economic growth? What would be a real alternative? How viable are alternatives to GDP when it comes to measuring prosperity? These and other more fundamental challenges are what this section is about.
After three decades of poorly managed integration, globalization is threatened by social discontent and the rise of populist forces. A new paradigm will need better ways not only to compensate the groups that have lost, but to distribute the gains more broadly from the start.
The euro was planned during a period in which economic policy making was driven by a deep belief in market liberalism and the near impossibility of systemic financial crises. This belief has been brought into question since the euro crisis, which showed that panics do happen. New thinking needs to focus on developing mechanisms to protect eurozone countries from such panics and to foster economic convergence between members.
The current Corona crisis is probably the worst economic crisis of the post-World War 2 era. Economists are working hard on mitigating the economic effects caused by COVID-19 to prevent a second Great Depression, the break-up of the Eurozone and the end of globalisation. We collect the most important contributions.