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Sectoral Imbalances and Long-run Crises

In: The Global Macro Economy and Finance

Author

Listed:
  • Domenico Gatti

    (Università Cattolica)

  • Mauro Gallegati

    (Università Politecnica delle Marche)

  • Bruce C. Greenwald

    (Columbia University)

  • Alberto Russo

    (Università Politecnica delle Marche)

  • Joseph E. Stiglitz

    (Columbia University)

Abstract

There has been a widespread presumption that the current economic crisis is a financial crisis, caused by the bursting of a credit bubble. Unjustified optimism about asset prices and associated risks (primarily in housing but also in financial industry equities and even in equities generally), accommodated by lax regulation, careless private lending and loose monetary policies, led to unsustainable levels of household and financial sector leverage. The inevitable collapse of the underlying asset prices then caused widespread bankruptcies, foreclosures, and impaired balance sheets among households, firms, and financial institutions. Combined with consequent large increases in the incremental risks of lending and investing, these balance sheet effects induced large declines in household spending, firm output and investment, and bank lending.1

Suggested Citation

  • Domenico Gatti & Mauro Gallegati & Bruce C. Greenwald & Alberto Russo & Joseph E. Stiglitz, 2012. "Sectoral Imbalances and Long-run Crises," International Economic Association Series, in: Franklin Allen & Masahiko Aoki & Jean-Paul Fitoussi & Nobuhiro Kiyotaki & Roger Gordon & Joseph E. S (ed.), The Global Macro Economy and Finance, chapter 4, pages 61-97, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-03425-0_5
    DOI: 10.1057/9781137034250_5
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    Citations

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    Cited by:

    1. Stiglitz Joseph E., 2018. "Working Paper 301 - Structural Transformation, Deep Downturns, and Government Policy," Working Paper Series 2401, African Development Bank.
    2. Masahiko Aoki, 2013. "Historical sources of institutional trajectories in economic development: China, Japan and Korea compared," Chapters, in: Comparative Institutional Analysis, chapter 22, pages 439-469, Edward Elgar Publishing.
    3. Li, Xi Hao & Gallegati, Mauro, 2015. "Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration," MPRA Paper 66002, University Library of Munich, Germany.
    4. Collin Constantine, 2017. "Economic structures, institutions and economic performance," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 6(1), pages 1-18, December.
    5. Martin Guzman & Joseph E Stiglitz, 2020. "Towards a dynamic disequilibrium theory with randomness," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(3), pages 621-674.
    6. Stiglitz, J.E., 2016. "An agenda for sustainable and inclusive growth for emerging markets," Journal of Policy Modeling, Elsevier, vol. 38(4), pages 693-710.
    7. Masahiko Aoki, 2013. "Comparative Institutional Analysis," Books, Edward Elgar Publishing, number 15474.
    8. Joseph E. Stiglitz, 2016. "The Theory of Credit and Macro-economic Stability," NBER Working Papers 22837, National Bureau of Economic Research, Inc.
    9. Stiglitz, Joseph E., 2015. "Leaders and followers: Perspectives on the Nordic model and the economics of innovation," Journal of Public Economics, Elsevier, vol. 127(C), pages 3-16.

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