• Lasse Østergaard
4. term, Science in Economics, Master (Master Programme)
Essentially, the way an economist approaches a study of the financial market depends on the answer to the question: Should an economist strive to explain the real world in which we live, with its inherent complexity? Or is the task of economists to reduce the complexity by the use of axioms and explain an idealized world? This question is methodological in nature and constitute an important line of demarcation in the history of economics, a line which separate the so-called mainstream Neo Classical economists from the unorthodox Post Keynesian economists. The former emphasize the beneficial effects from liberalization and openness of the financial market while the latter warn about the dangers of such policies and recommend state intervention, regulation, and financial controls. This thesis' objective is twofold. Firstly, to discuss the fundamental methodological and theoretical differences between the Neo Classicals and the Post Keynesians, regarding the study of the financial market. This thesis conclude that whether or not the future is perceived to be fundamentally uncertain, is the crucial dividing line between the two opposing views. If the ``real'' world is perceived to be non-ergodic, the fundamental assumptions of Neo Classical theory must be rejected. Secondly, if rejecting Neo Classical theory by rejecting the axiom of ergodicity Post Keynesian theory must be applied to understand financial markets. As an illustrative case, this thesis applies a distinctively Post Keynesian theoretical framework, based on the work of Hyman Minsky, to the African island state of Mauritius and its financial market. Mauritius has, during the last 10 year, developed a financial market along the lines of Neo Classical policy proposals of liberalization and openness. This thesis analyzes whether this process has increased the financial vulnerability of the island, in accordance with Post Keynesian theory. The analysis finds supportive evidence of Mauritius has become more financial vulnerable the last 10 years, especially in the period from 2005 until today. One area where the Mauritian development has been particularly concerning is the rapid increase in short-term maturity debts, denominated in foreign currencies. Mauritius might find itself in deep financial trouble in the near future, as these short-term maturity debts needs renewing, given the increased competition for international credit and the uncertainty which characterize the international financial markets, due to the current financial crisis.
Publication date2009
Number of pages84
Publishing institutionAAU, Institut for Erhversstudier
ID: 17676810