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Is It All About the Fundamentals? A Structural Interpretation of Global Crisis

Turhan, Ibrahim M. (2017): Is It All About the Fundamentals? A Structural Interpretation of Global Crisis.

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Abstract

The world has been struggling with the economic and financial crisis for almost a decade and yet, in spite of all efforts we have so far witnessed, problems persist. Volatility in financial and commodity markets, protracted low inflation in some advanced economies, debt overhang and geopolitical risks cast a shadow over the global outlook. Furthermore, economies both advanced and emerging exhibit some very unusual, unprecedented and even odd patterns; Policy makers are bounded with data dependency due to contradicting and confusing economic data. Surprisingly, despite the overwhelming reign of real business cycle models in graduate teaching and despite the prevalence of mainstream economics whose inspiration is mainly neoclassical approach, there is almost no emphasis on real factors which might have caused to this controversial situation. This study argues the crisis is related with the permanent total factor productivity decline and it is simply another iteration of boom-bust cycles due to arriving at the edge of productivity for the existing system of economic relationships that has already happened four times for the last two hundred years.

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