Theoretically on Guard for Crises

Abstract

This chapter begins with a discussion of the evidence presented in Chapter 6; that is, what can be made of all the evidence compiled in the previous chapter? Does one theory (or more than one) stand out as being capable of capturing the essence of financial crises in the twenty-first century? An attempt is made in the first section of this chapter to address these questions. As we already know, theories of financial crisis tend to have many shared elements. This is because actual experiences, both in the US and globally, have, over time, many common elements. However, it is also true that no two crises are identical. Because of this, the second section of this chapter identifies those elements unique to the twenty-first century that may or may not conform to theory. In the third section, a short explanation of the post-crisis experience is offered. This allows us to put this crisis into some relative context regarding its real sector impact and the efficacy of monetary policy. The fourth and final section offers some concluding remarks.