How Big is Too Big? What Does Finance Do, and What Should We Do About It?

The concept of innovation has been discussed widely and the theory of innovation has been developed significantly in reference to the real sector. Particularly, Joseph Schumpeter and his followers have significantly contributed to this literature. However, the literature on financial innovation has been relatively poor to date. Although the number of studies on financial innovation has increased significantly for the last couple of decades, there are many disagreements and many not well-chartered territories in the financial innovation literature. This paper aims at documenting the current situation in the financial innovation literature by especially focusing on existing empirical literature. We show that there is a structural change in the financial innovation literature after the financial crisis of 2008, in which the literature is more open to documenting the negative theoretical and empirical implications of financial innovations.

How Big is Too Big?: What Does Finance Do, and What Should We Do About it?

Panel at the Eastern Economic Association 2014 Conference, Boston,  March 7, 2014

Chair: Gerald Epstein, Department of Economics and Political Economy Research Institute (PERI) University of Massachusetts, Amherst

Hasan Comert, Middle Eastern Technical University (METU),