Balance sheet crises, in which the prices of widely held and highly leveraged assets collapse, pose distinctive economic challenges. An understanding of their causes and consequences is only recently developing, and there is no agreement on effective policy responses. From backgrounds in experimental economics, Steven Gjerstad and Nobel laureate Vernon L. Smith examine events that led to and resulted from the recent U.S. housing bubble and collapse, as a case study in the formation and propagation of balance sheet crises. They then examine all previous downturns in the U.S. economy, including the Great Depression, and document substantive differences between the recurrent features of economic cycles and financial crises and the beliefs that public officials hold about them, especially within the Federal Reserve System. They conclude with an examination of similar events in other countries and assess alternative strategies to contain financial crises and to recover from them.
|Publisher:||Cambridge University Press|
|Product dimensions:||5.98(w) x 8.98(h) x 0.87(d)|
About the Author
Vernon L. Smith was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. He has joint appointments in the Argyros School of Business and Economics and the School of Law at Chapman University, and he is part of a team that will create and run the new Economic Science Institute there. Dr Smith has authored or co-authored more than 250 articles and books on capital theory, finance, natural resource economics, and experimental economics. He serves or has served on the board of editors of the American Economic Review, the Cato Journal, the Journal of Economic Behavior and Organization, the Journal of Risk and Uncertainty, Science, Economic Theory, Economic Design, Games and Economic Behavior, and the Journal of Economic Methodology. He is a past president of the Public Choice Society, the Economic Science Association, the Western Economic Association, and the Association for Private Enterprise Education. He received his PhD from Harvard University.
Table of Contents1. Economic crises, economic policy, and economic analysis; 2. Goods and service markets vs. asset markets; 3. Asset performance: housing and the Great Recession; 4. The Great Depression; 5. The postwar recessions; 6. What may have triggered or sustained the housing bubble, 1997-2006?; 7. The bubble bursts: subprime mortgages, derivatives, and banking collapse; 8. Blindsided experts; 9. What might be done?; 10. Learning from foreign economic crises: consequences, responses, and policies; 11. Summarizing: what have we learned?