International Journal of Finance, Insurance and Risk Management ISSN: 2047-0916

Income from Speculative Financial Transactions will always Lead to Macro-Economic Instability

Tobias Schädler, Michael Grabinski
International Journal of Finance, Insurance and Risk Management, Volume 5, Issue 3, 922, 2015
DOI: 10.35808/ijfirm/128

Abstract:

Starting with a macro-economic model based upon the NAIRU (the nonaccelerating inflation rate of unemployment), we show that, in a world with no (speculative) financial transactions, the macro- economy shows a stable equilibrium state. Including income from (speculative) financial transactions will lead to instability if the amount is sufficiently large. Considering the present amount of financial transactions, stability is impossible. Therefore, further financial crashes are not only likely but inevitable.


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