Economic Instability and Financial Crises in a Capitalist Financial System: Empirical Evidence from the UK

2012

Khan, Ashfaq A

Ahmad, Wiqar

Editor(s): Isnurhadi, Zulkarnain Ishak, Kitima Tamalee, Hasni Yusrianti

Conference Publication

en

Publication

Sriwijaya University

Palembang, Indonesia

une:12597

Financial crisis have been happening for a long time now with little empirical studies investigating the real causes of these crisis and providing viable remedies. We provide empirical evidence of a three-stage cyclical pattern in an economy, following our investigation of the financial crisis of the past, where a gradual deterioration of financial structures occur that leads the economy into recession: The 'sustained economic activity' stage, characterised by the 'booming economic activity' stage. Unsolicited actions of many of the financial markets' players operate during both of these stages to push the economy into a 'booming economic activity'; the next stage is the formation of a 'bubble' and gradual enlargement of this credit 'bubble' in the sector; in the next stage this bubble ruptures and results in the financial crises in that sector. The economy thus experiences a big confidence shock and failure of financial institutions. The study makes policy recommendations to financial markets players and regulators.

link

Proceedings of The 13th Malaysia-Indonesia International Conference on Economics, Management and Accounting (MIICEMA), v.1, p. 842-857

9795874292

842

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