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Why Is Finance Important? Some Thoughts On Post-Crisis Economics

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  • YEW-KWANG NG

    (Nanyang Technological University, 14 Nanyang Drive, Singapore 637332, Singapore)

Abstract

The global financial crisis of 2008 challenges some relevant aspects of macroeconomic theory such as the neutrality of money. This paper shows that this neutrality is based on the unrealistic assumption of perfect competition. Relaxing this alone (without time lags, price rigidities, menu costs and other frictions) makes money no longer necessarily neutral and hence makes financial crises and institutions much more important. The presence of increasing returns to scale at the firm level and to specialization at the economy level due to the division of labor also makes finance much more important than suggested by traditional economics.

Suggested Citation

  • Yew-Kwang Ng, 2014. "Why Is Finance Important? Some Thoughts On Post-Crisis Economics," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(05), pages 1-20.
    • Handle: RePEc:wsi:serxxx:v:59:y:2014:i:05:n:s0217590814500374
    DOI: 10.1142/S0217590814500374
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    1. Yew-Kwang Ng, 2009. "Why Should Governments Encourage Improvements on Infrastructure? Indirect Network Externality of Transaction Efficiency," Palgrave Macmillan Books, in: Increasing Returns and Economic Efficiency, chapter 8, pages 88-100, Palgrave Macmillan.
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    7. Hoffmann, Arvid O.I. & Post, Thomas & Pennings, Joost M.E., 2013. "Individual investor perceptions and behavior during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 60-74.
    8. Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-199, April.
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    Cited by:

    1. Ng, Yew-Kwang, 2018. "Ten rules for public economic policy," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 32-42.

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    More about this item

    Keywords

    Finance; financial institutions; financial crisis; money supply; macroeconomics; G00; E00; D4;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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