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Is a Plumber or a New Financial Architect Needed to End Global International Liquidity Problems?

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  • Davidson, Paul

Abstract

How one interprets volatility in the international financial markets and therefore chooses a policy stance regarding these markets depend on the underlying economic theory that one explicitly, or implicitly, utilizes to explain the role of financial markets in a market-oriented entrepreneurial economy. There are two major alternative theories of financial markets: (1) the classical efficient market theory (hereafter EMT) and (2) Keynes’s liquidity preference theory (hereafter LPT). Each produces a different set of policy prescriptions. EMT advocates call for a liquidity plumber to patch up some short-run stresses in today’s efficient international financial flow system. LPT proponents believe that the current system is structurally flawed. Consequently, it will require an architect to build a new international financial structure on more solid foundations.
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  • Davidson, Paul, 2000. "Is a Plumber or a New Financial Architect Needed to End Global International Liquidity Problems?," World Development, Elsevier, vol. 28(6), pages 1117-1131, June.
    • Handle: RePEc:eee:wdevel:v:28:y:2000:i:6:p:1117-1131
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