UNH economist offers prescription for financial sector.
University of New Hampshire economics professor Michael Goldberg proposed new ways to regulate the financial sector in a recent presentation at a national conference in New York.
A professor at UNH's Whittemore School of Business and Economics. Goldberg presented his analysis and recommendations at the "Emerging from the Financial Crisis" conference sponsored in February by the Center on Capitalism and Society at Columbia University, with Roman Frydman, professor of economics at New York University. Goldberg and Frydman arc the authors of "Imperfect Knowledge Economics: Exchange Rates and Risk,"
Goldberg and Frydman's analysis and recommendations on regulating the financial sector are based on their research and development of the Imperfect Knowledge Economics, or IKE, model that asserts that exact models of purposeful human behavior are beyond the reach of economic analysis.
According to the economists, in the current financial crisis, market intervention should go beyond aiming for transparency. Instead. officials should attempt to dampen excessive swings--price movements in the aggregate that are either too high or too low.
The economists recommend the development and promotion of a guidance range of non-excessive values in financial markets. This range would lead bulls to moderate their positions and bears to strengthen theirs if prices were above the official range, and vice versa if prices were below it.
A guidance range would have been particularly effective in thwarting the crisis in the housing market, the researchers note.
As for regulation of banks and other financial institutions, the researchers note that measures taken to dale overlook the importance of imperfect knowledge and asset price swings for assessing risks in the financial system and for reforming the credit rating system.
The economists recommend that ratings agencies be required to report at least two ratings of securities, along with the methodology used to arrive at each: one assuming that historical patterns will continue, and at least one other assuming reversals in the trends of major variables and the prices of the underlying assets.
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|Title Annotation:||CORPORATE FINANCE|
|Publication:||New Hampshire Business Review|
|Date:||Mar 27, 2009|
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