Finance and Economy for Society by Sharam Alijani Catherine Karyotis

Author:Sharam Alijani, Catherine Karyotis
Language: eng
Format: epub
ISBN: 9781786355102
Publisher: Emerald Group Publishing Limited
Published: 2016-12-15T05:00:00+00:00

Fig. 2. Vicious Circle (Reinhart & Rogoff, 2009).

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The vicious circle can begin with a bank crisis or panic (with a bank run) and contagion which brings about a loss of confidence and thus problem of liquidity, which leads to a rapid decrease in equity market prices and which, in turn, produces a high volatility and so on.

The functional-approach explanation of the dynamics of the institutions in a financial system would predict that financial systems will not be tenable in the presence of rapid financial innovations such as have been witnessed over the past 30 years.

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