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Some Thoughts on Financial Innovation and Financial Crises

Author

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  • Giovanni Palmerio

    (Department of Economics – LUMSA University, Rome)

Abstract

Financial innovation, which was originally introduced for a positive aim, over time has actually had relevant negative effects on the economy. This occurred because it encouraged intermediaries to change their way of operating, allowing them to modify their solvency without changing radically their external shape. Financial innovation, which developed on account of both the need to finance the growing USA external debt and the tendency of American families to incur into excessive debts, is certainly the main cause lying behind the recent financial crises. In the future, these can be avoided only by means of a strict regulation of financial markets.

Suggested Citation

  • Giovanni Palmerio, 2009. "Some Thoughts on Financial Innovation and Financial Crises," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(26), pages 522-532, June.
    • Handle: RePEc:aes:amfeco:v:11:y:2009:i:26:p:522-533
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    References listed on IDEAS

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    1. Jameson, Mel & Dewan, S. & Sirmans, C. F., 1992. "Measuring welfare effects of "unbundling" financial innovations: The case of collateralized mortgage obligations," Journal of Urban Economics, Elsevier, vol. 31(1), pages 1-13, January.
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    3. Elul Ronel, 1995. "Welfare Effects of Financial Innovation in Incomplete Markets Economies with Several Consumption Goods," Journal of Economic Theory, Elsevier, vol. 65(1), pages 43-78, February.
    4. Robert C. Merton, 1995. "A Functional Perspective of Financial Intermediation," Financial Management, Financial Management Association, vol. 24(2), Summer.
    5. Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2789-2811, November.
    6. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 1.
    7. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 2.
    8. Adam B. Ashcraft & João A. C. Santos, 2007. "Has the credit derivatives swap market lowered the cost of corporate debt?," Staff Reports 290, Federal Reserve Bank of New York.
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    Citations

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    Cited by:

    1. Alenka Kavkler & Mejra Festić, 2010. "The Trade Deficit and Banking Sector Results in Romania and Bulgaria," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 12(27), pages 199-213, February.
    2. repec:cmj:journl:y:2013:i:29:tuca is not listed on IDEAS
    3. Arshad Ali Bhatti & M. Emranul Haque & Denise R. Osborn, 2013. "Is the Growth Effect of Financial Development Conditional on Technological Innovation?," Centre for Growth and Business Cycle Research Discussion Paper Series 188, Economics, The University of Manchester.
    4. Sabina G. ŢUCA, 2013. "The Current Global Crisis: Causes And Solutions," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 2, pages 307-313, October.

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    More about this item

    Keywords

    financial crises; financial innovation; international financial markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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