Excess Volatility in Financial Markets: Market Failure and Government Failure

Financial markets operate within a country’s legal, regulatory, and tax framework, often designed to overcome market failures. But as with almost any government, inappropriate regulation or laws may themselves create government failures.  Where does one lay the blame for excess volatility in financial markets, volatility that may impose huge costs on the rest of the economy?  In this seminar by Dr Gurubachan Singh based on his recent paper traced the causes of excess volatility and suggests that both market and government failure are usually at fault.  As suggested in his paper, Dr Singh explained  approaches based on regulation, law, taxation, and the macroeconomic policy regime that can be deployed to try to improve the functioning of financial markets. Dr Shesadri Banerjee , NCAER as the discussant for the paper presented his very interesting views on financial volatility.

Dr Gurbachan Singh is a visiting faculty member at the Indian Statistical Institute, Delhi, where he teaches a course on Finance and Volatility. He has previously taught at Jawaharlal Nehru University. His research interests focus on macro-financial stability. He has authored a book Banking Crisis, Liquidity, and Credit Lines (Routledge, 2012). He has a PhD from ISI and an MA from the Delhi School of Economics.

This seminar follows a number of recent NCAER seminars on international finance and monetary policy, including Gurbachan Singh’s last seminar on “Is India Hedged Against Systemic Risk?” (June 05, 2013); Shesadri Banerjee on “Inflation Volatility and Activism of Monetary Policy” (November 22, 2013); and Sanket Mohapatra on “The Effect of Quantitative Easing on Financial Flows to Developing Countries” (August 07, 2014).