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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title In search of economic reality under the veil of financial markets
Organization Unit
  • Josef Falkinger
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 154
ISSN 1664-7041
Number of Pages 53
Date 2014
Abstract Text This paper presents a general equilibrium model with technological uncertainty, financial markets and imperfect information. The future consists of uncertain environments that are more or less clearly distinguishable (measurable). This limits the possibilities of specialization and diversification. Households have no direct information about the productivity of risky technologies. They rely on the information conveyed by the set of financial products provided by the financial sector, the pay-off promises of the products and their prices. Unreliable information-processing by financial markets leads to deception of households. As a result, extending the space spanned by financial products is not unambiguously good. This suggests a policy rule which ties financial innovations to the experience base of the economy.
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Keywords Real and financial economics, incomplete knowledge, risk and uncertainty, financial crisis, size of financial sector, responsible finance, Realwirtschaft, Finanzwirtschaft, Ungewissheit, Risiko, Regulierung, Finanzkrise