Ikke irrasjonalitet, heller ikke friksjon eller sticky prices, ei kredittrestriksjon?

Roger E. A. Farmer, UCLA, om hvorfor markedet er ineffektivt.

My recent research with various co-authors argues that while there are strong reasons for believing there are no free lunches left uneaten by bonus-hungry market participants, there are really no reasons for believing that this will lead to Pareto efficiency, except, perhaps, by chance (Farmer, Nourry, Venditti 2012).

In separate work, I look at the policy implications of this, showing that the Pareto inefficiency of financial markets provides strong grounds to support central bank intervention to dampen excessive fluctuations in the financial markets (Farmer 2012b). These are strong and polarising claims. They are not made lightly.

[…]

We show that financial markets cannot work well in the real world except by chance because:

There are many equilibria;
Only one of them is Pareto efficient;
For all other equilibria, the whims of market participants cause the welfare of the young to vary substantially in a way that they would prefer to avoid, if given the choice.
Our paper makes some classical assumptions, but has Keynesian policy implications. Agents are rational, they have rational expectations and there are no financial frictions. Even when agents are rational, markets are not.

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