Wolfgang Filc: Inefficient markets: Causes and consequences

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Inefficient markets: Causes and consequences

12 pp.
2.70 EUR
(March 2009)

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The author holds the view that efficient financial markets are an indispensable requirement for economic well-being – economic growth, high employment, and price stability. But as financial turbulences during the last decade have demonstrated impressively according to Filc, the formerly prevailing strong belief that prices and yields in financial markets represent efficient solutions vanished into thin air. The underlying reasons for financial systems’ proneness to crisis are risk, uncertainty, ignorance and greed, reinforced by financial globalisation. It is argued that a precondition to prevent financial crises is a credible macroeconomic policy and a much higher degree of coordination of economic policy between countries, which are of great importance for the world economy, as well as the elimination of those exchange rate developments which generate misleading allocation signals. Finally, the need of global governance of financial markets that accords with globalised economic relations is claimed.

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