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The myth of financial innovation and the great moderation

Den Haan, Wouter J. and Sterk, Vincent (2010) The myth of financial innovation and the great moderation. Economic Journal, 121 (553). pp. 707-739. ISSN 0013-0133

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Abstract

Financial innovation is widely believed to be at least partly responsible for the recent financial crisis. At the same time, there are empirical and theoretical arguments that support the view that changes in financial markets, in particular, innovations in consumer credit and home mortgages, played a role in the ‘great moderation’. This article questions empirical evidence supporting this view. Especially the behaviour of aggregate home mortgages changed less during the great moderation than is typically believed. A remarkable change we do find is that monetary tightenings became episodes during which financial institutions other than banks increased their mortgages holdings.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information: © 2010 The Authors; The Royal Economic Society
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G0 - General > G00 - General
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 14 Feb 2012 10:49
URL: http://eprints.lse.ac.uk/41885/

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