Keynes, Minsky and Financial Crises in Emerging Markets


Ognjen Radonjić, Srđan Kokotović

Year of publication: 2014.
Book size: 24 cm
Number of pages: 267

One of the most important, yet perhaps still under-appreciated lessons of the global financial crisis of 2007-09 concerns the role that academic economics plays in today's society and politics. Along with the revelations about the skewed incentive structure in the financial industry, short-termism in national economic policies, dogmatic thinking at the levels of international economics institutions and controversial processes of financial innovation, the crisis has exposed mainstream academic economics as a closed-minded enterprise, worryingly narrow in its scope and mission, and increasingly detached from the analysis of economic realities. As part of this transformation in academic economics, studying economic history and learning from the rich history of the profession, has been crowded out to the margins of economics.
Keynes, Minsky and Financial Crises in Emerging Markets represents a long-needed attempt by economists to depart from this sad trend. Radonjić and Kokotović focus on the evolution of financial structures and the way this process has been analysed by, on the one hand, economic orthodoxy, and heterodox scholars such as John Maynard Keynes and Hyman Minsky, on the other. At the very centre of the book's critique is the relationship between privately created credit instruments and public, or official monetary support to the economy. Focusing in depth of the anatomy of financial instability and crises, the authors chart the evolution of key conceptual approaches to financial crisis, and examine in depth the key cases of fragility, crises and crashes of the past three decades. Their rigorous, reflexive and well-documented empirical analysis illustrates the effects of key processes of endogenous credit at work in different political-economy contexts: emerging economies in Latin America, East Asia and Eastern Europe, and the advanced economies of Anglo-Saxon capitalism. Carefully tracing the development of academic thought on finance over the past few decades the authors present a dynamic, critical and well-informed portrayal of the financial system driven by private financial innovation yet dependant on public liquidity provision in times of crises. Their analysis of this controversy makes this text a must-read for all students of financial capitalism post-2008, and a valuable resource to those who aim to lessen the economic burden of financial crises in the future.

Anastasia Nesvetailova
City University London

In this book, Ognjen Radonjić and Srdjan Kokotović analyze a problem of the growing international economic and financial instability from the perspective of post-Keynesian economic thought. In line with the post-Keynesians, authors insist on the fact that assumptions of the theoretical model predetermine its implications. Since, as authors advocate, assumptions of the efficient markets model are not realistic, it means that its implications are not valid, which is a fact repeatedly reiterated in the real life in the last three decades. Again, in the real life, in economic literature and policymaking circles, this fatal flaw of the theory of efficient markets has still been predominately ignored. On the other hand, Radonjić and Kokotović refuse to submit to this ideology. As their main research tool in rejecting efficient markets mantra, they use theoretical insights of John Maynard Keynes and Hyman Minsky, two seminal heterodox economists, aiming at explaining causes of financial crises in open, emerging economies. I believe that this study contains undisputable scientific contribution to the current and future analyses of the utmost important issue of the stability of the world financial system.

Professor Miodrag Zec
Faculty of Philosophy, University of Belgrade

Keynes, Minsky and Financial Crises in Emerging Markets is an pivotal theoretical discussion supported by concrete empirical data, which significantly contributes to our understanding of the fundamental issues of the nature and causes of the financial crises in both, developed and developing countries. The policy prescriptions arising from the analysis of what measures need to be taken in the event of financial crisis and how to prevent growing financial fragility of a local open economy should be subject of a thorough examination of academicians and policymakers.

Professor Boško Živković
Faculty of Economics, University of Belgrade

Ognjen Radonjić (1975) is Associate Professor of Economics at the Faculty of Philosophy, University of Belgrade. He is a member of the Institute for Sociological Research, Belgrade, Scientific Association of Economists of Serbia, Belgrade, World Economics Association, Bristol, the UK and editorial board of the Sociology, Journal of sociology, social psychology and social anthropology. He is the author of the book Financial Markets: Risk, Uncertainty and Conditional Stability (in Serbian, 2009) and the co-author (with Srdjan Kokotović) of The Second Decade of Transition in Emerging Europe: The Age of Capital Inflows, Macroeconomic Imbalances and Financial Fragility (2012). He also wrote a number of articles on macroeconomics arid financial markets topics. Radonjić received a PhD in economics from the Faculty of Economics, University of Belgrade.

Srdjan Kokotović (1976) is deputy general manager of the Financial Stability Department within the National Bank of Serbia. Previous engagements include bank supervision also within the National Bank of Serbia, an economist position in the International Monetary Fund, managing Risk Controlling Department and Chief Economist position in Hypo Alpe-Adria-Bank, Belgrade. He also managed privatization projects and financial analysis within the Deposit Insurance Agency. Srdjan Kokotović was a member of editorial board of the Quarterly Monitor of Economic Trends and Policies, a journal published by the Foundation for the Advancement of Economics (FREN). He is the co-author (with Ognjen Radonjić) of the book The Second Decade of Transition in Emerging Europe: The Age of Capital Inflows, Macroeconomic Imbalances and Financial Fragility (2012) and he wrote a number of articles in the field of financial stability, real sector development, labor market and economic policy. Kokotović obtained an MSc degree in quantitative finance from the Faculty of Economics, University of Belgrade.