Two Thorns of Experience: Financialisation in Iceland and Ireland

18 Pages Posted: 30 Jul 2016

See all articles by Hamid Raza

Hamid Raza

Aalborg University - Department of Business and Management

Bjorn Gudmundsson

University of Iceland - Faculty of Economics and Business Administration

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Stephen Kinsella

University of Limerick

Date Written: July 24, 2016

Abstract

We explain the 2008 crisis in Iceland and Ireland with an emphasis on the role financialisation played in destabilising these countries' economies. The two small open economies share similarities in that both countries had capital inflows before the crisis, ending with a sudden stop. However, the mechanisms of the crisis, which induced the capital flows, the factors that influenced them and their effects on the real economy differed due to differences in currency regimes and the response to the crises. We investigate the link between financialisation and the transmission channels of financialisation on macroeconomy, using ARDL methodology. Finally, we suggest policy prescriptions to limit the scale and scope of similar crises in the future while highlighting the institutional differences between the two economies.

Keywords: Capital flows, financialisation, sudden stops, small open economies, currency regime

JEL Classification: G01, F32, F38

Suggested Citation

Raza, Hamid and Gudmundsson, Bjorn and Zoega, Gylfi and Kinsella, Stephen, Two Thorns of Experience: Financialisation in Iceland and Ireland (July 24, 2016). International Review of Applied Economics, No. 1-19, 2016, Available at SSRN: https://ssrn.com/abstract=2813838

Hamid Raza

Aalborg University - Department of Business and Management ( email )

Aalborg, DK-9220
Denmark

Bjorn Gudmundsson

University of Iceland - Faculty of Economics and Business Administration ( email )

IS-101 Reykjavik
Iceland

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stephen Kinsella (Contact Author)

University of Limerick ( email )

Limerick
Ireland
+35361233611 (Phone)
+35361330316 (Fax)

HOME PAGE: http://stephenkinsella.net

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