CRISIS AND ECONOMIC PARADIGM

Abstract

The paper deals with the currentfinancial and economic crisis. The crisis spilledover from developed countries on the periphery andon Bosnia and Herzegovina economy. Given theextent of financial and economic crisis, the questionis whether the ruling economic paradigm led to acrisis and whether it is necessary to review it.States’ response to the crisis is expected.Governments have invested huge financialresources in order to save important financialinstitutions. Regulation of financial institutions issignificantly changed and adopted a new set ofrules-Basel III. The aim is to triple capitalrequirements until 2019 and to strengthenmonitoring of bank liquidity. Crucial assistance inmitigating the effects of the crisis to developingcountries and transition economies was providedby IMF with considerably increased financialpotential. In its programs of assistance IMF hasretained its economic doctrine. Countries areallowed some flexibility and discretion in theselection of certain instruments of economicpolicies and IMF has not insisted so much onstructural reforms so far. The academics reinforcedthe neo-liberal critique of the concept but do notoffer new models. Emphasis is placed on theirrational behavior of economic actors as opposedto initial assumptions of neoclassical theory that alleconomic participants are rational. The occurrenceof the crisis denied such a setting. It is necessary tofurther review the ruling economic paradigm.

Keywords

• financial and economic crisis
• the crisis in Bosnia
• the economic paradigm
• the IMF program