Report
Is it worth trying to prevent financial crises?
Most economists believe that financial crises caused by excessive debt or asset price bubbles should be prevented from appearing. Financial crises lead to a slump in activity, and have long-lasting negative effects on productivity gains, growth and unemployment. But some economists believe, on the contrary, that one should not try to prevent financial crises. Preventing financial crises requires: Severe regulation of financial intermediaries; A restrictive monetary policy during expansion periods to prevent increases in debt and asset prices. According to these economists, this would then lead to a weakening of growth that outweighs the cost of financial crises. They prefer the equilibrium with financial crises since average growth is higher in this equilibrium where no restrictive policy aiming to prevent crises is implemented. Central banks unfortunately seem to have adopted this theory.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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