IS IT LIKELY FOR A FINANCIAL INNOVATION TO LEAD AN ECONOMIC CRISIS? MAJOR EXAMPLES OF FINANCIAL CRISES

Abstract

Author(s): Cansu SARKAYA IELLIOGLU

It is a very well known truth that the financial innovations have a lot of significant positive impacts on the economy. For example, even a considerably trivial financial innovation may be helpful an economy to recover. However, we have also seen some equivocal claims, which argue that the financial innovations may have a dark side on their own behalf. Surely, the financial innovations sometimes may create complexity and actors in the financial sector may not correctly evaluate the risk and the return of the new products and services. Somehow, the creators of financial innovations were regarded as responsible of the recent global crisis of 2008 stemmed from mortgage markets. In this paper, theoretical literature about financial innovation and global crises was researched in detail, major crises stamped the economy were discussed, and whether the financial innovations have a share in these crises was analyzed. The paper develops propositions based on this review and discusses implications to avoid possible economic crises in the future.

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