2007-2008 Discussions on Predictability of The Global Financial CrisisGülden Poyraz
The recent financial crisis has triggered significant debates concerning economic theory and policy. The most important discussions focused on the question: ‘why was the crisis not foreseen?’. In this context, the question of why the 2007-2008 global financial crisis was not foreseen is addressed from three different perspectives. The first view is that the crisis could not be predicted by economists in general and that the recent financial crisis emerged as a surprise for most of the academicians and policy makers. Another view is that the crisis was foreseen by some economists, but these predictions were not taken into account. Finally, an entirely different view is the approach that states that economics / economists do not have to predict the crisis. The study also provides a discussion of the methods used by economists in analysing the economy and formulating their proposals.
2007-2008 Küresel Finansal Krizin Öngörülebilirliği Üzerine TartışmalarGülden Poyraz
Son finansal kriz ekonomik teori ve politikayla ilgili önemli tartışmalara yol açmıştır. En önemli tartışmalar ‘kriz neden öngörülemedi?’ sorusu üzerine yoğunlaşmıştır. Bu çerçevede çalışmada 2007-2008 küresel finans krizinin neden öngörülemediği sorusu 3 farklı görüşle ele alınmaktadır. Bu görüşlerden ilki, krizin genel olarak iktisatçılar tarafından öngörülemediği ve son finansal krizin akademisyenler ve politika yapıcıların çoğu için sürpriz olarak ortaya çıktığını ifade etmektedir. Diğer bir görüş, krizin bazı iktisatçılar tarafından öngörüldüğü, fakat bu öngörülerin dikkate alınmadığı şeklindedir. Son olarak ve tümüyle farklı bir görüş ise iktisadın/iktisatçıların kriz öngörüsünde bulunmasının gerek olmadığını ifade eden yaklaşımdır. Çalışma ayrıca, iktisatçıların ekonomiyi analiz etme ve analizlerini formüle etmede kullandıkları yöntemlerin de bir tartışmasını sunmaktadır.
The crisis of 2007-2008 was the largest financial crisis since the 1930s and is characterised by being the deepest, most large scale and severe crisis of its predecessors. Davis and Karim (2008) suggested that the global financial crisis of 2007-2008 was revealed as a surprise for both most of the market participants and policymakers. In the early years of 2007, financial institutions such as the European Central Bank (ECB), BIS and the IMF couldn’t anticipate the severity of the crisis or its scope of the international. The recent financial crisis has triggered significant debates concerning economic theory and policy. The most important discussions focused on the question ‘why was the crisis not foreseen?’. In this context, the question that why the global financial crisis in 2007-2008 is not foreseen is considered in three different perspectives. The first view is that the crisis could not be predicted by economists in general and that the recent financial crisis emerged as a surprise for most of the academicians and policy makers. In this respect, the most important criticism towards the question “Why wasn’t the crisis predicted” is directed to the Dynamic Stochastic General Equilibrium models. These models include real sector variables except for money supply and interest rates. Dynamic Stochastic General Equilibrium models provide detailed predictions about the real economy. Moreover, the equations that composed in these models do not include finance and banking sectors despite the fact that their failures may turn the general economy upside-down. Therefore, It is indicated that by their nature of these models don’t have the appropriate tools in order to struggle with the financial crisis and a suitable structure that cover the dynamics of the crisis. Considering that the long-term stagnations were due to the balance sheet problems partly in the financial sector as a result of the collapse of asset prices since the late 1980s (Bezemer, 2009: 19), necessitate the inclusion of financial markets to these models. Existing deficiencies in Dynamic Stochastic General Equilibrium models emerged along with the global crisis. Thus, since 2016, The Reserve Bank of Australia (RBA) began to use a new macroeconomic model called MARTIN (Macroeconomic Relationships for Targeting INflation) in its policy analysis and forecasts. In this respect, the study provides a discussion of the methods used by economists in analysing the economy and formulating their proposals. Within this scope, two explanations can be given to the question of why the 2008 global financial crisis could not be predicted. The first was that the failure of economists to expand these models in a way to cover the risk of crisis or consciously prefer to do not so (Davies and McGoey, 2012). The second explanation is the fact that the Dynamic Stochastic General Equilibrium models that widely used today keep the especially financial markets out of the model, underestimated the new financial system created by financial institutions and weaknesses in risk assessment techniques. Considering all these factors, it may help explain the question of why the 2007-2008 global crisis couldn’t be predicted. The second view is that the crisis was predicted by some of the economists, but these predictions were not considered and ignored. As mentioned above, the idea that “no one could foresee the crisis” is a widespread opinion among the public, policymakers, and economists in general. Contrary to this view, although the economist/finance managers who are predicting the crisis warned that predominantly financial globalization, the real estate market of the U.S. and derivative products have significant risks, the question of ignoring why these warnings can be answered with a tendency towards “strategic ignorance”. The last opinion is the approach that economics/economists do not need to predict the crisis. This approach explains in the framework of the efficient market hypothesis and rational expectations that economics or economist does not need to predict the crisis.