The “Surprising” Origin and Nature of Financial Crises: A Macroeconomic Policy Proposal

Most professional (and amateur) economists and policymakers are currently seeking answers to these questions, and we are no exception. However, we argue that the conventional wisdom is rushing into conclusions and is converging too quickly on the standard post-crises themes of insufficient regulation, real estate bubbles, excessive leverage and capital flows, lax monetary policy, and so on. We do not disagree with the importance of some of these themes, but stopping there is bound to lead either to fairly conventional policy recommendations, which have already proved to be insufficient to prevent severe crises from recurring, or to asphyxiate the development of the financial system through excessive capital requirements and deleveraging.