Abstract

http://ssrn.com/abstract=923683
 
 

References (64)



 
 

Citations (153)



 


 



Has Finance Made the World Riskier?


Raghuram G. Rajan


University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)


European Financial Management, Vol. 12, No. 4, pp. 499-533, September 2006

Abstract:     
Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behaviour makes more likely. As a result, under some conditions, economies may be more exposed to financial-sector-induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market-friendly policies that would reduce the incentive of intermediary managers to take excessive risk.

Number of Pages in PDF File: 35

Accepted Paper Series


Date posted: August 11, 2006  

Suggested Citation

Rajan, Raghuram G., Has Finance Made the World Riskier?. European Financial Management, Vol. 12, No. 4, pp. 499-533, September 2006. Available at SSRN: http://ssrn.com/abstract=923683 or http://dx.doi.org/10.1111/j.1468-036X.2006.00330.x

Contact Information

Raghuram G. Rajan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
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