Working Paper: NBER ID: w14731
Authors: Michael P. Dooley; David Folkerts-Landau; Peter M. Garber
Abstract: In this paper we argue that net capital inflows to the United States did not cause the financial crisis that now engulfs the world economy. A crisis caused by such flows has been widely predicted but that crisis has not occurred. Indeed, the international monetary system still operates in the way described by the Bretton Woods II framework and is likely to continue to do so. Failure to properly identify the causes of the current crisis risks a rise in protectionism that could intensify and prolong the decline in economic activity around the world.
Keywords: No keywords provided
JEL Codes: F02; F32; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| net capital inflows (F21) | financial crisis (G01) |
| failures in risk management (H12) | financial crisis (G01) |
| ineffective supervision and regulation (G28) | financial crisis (G01) |
| financial crisis (G01) | incentives driving Bretton Woods II system (F33) |
| low real interest rates (E43) | underpricing of risk (G19) |
| Bretton Woods II framework (F33) | low real interest rates (E43) |
| collapse of asset prices (E44) | sudden end to low real interest rates (E43) |
| sudden stop of lending (G21) | financial crisis (G01) |