Financial system and economic cycle from the heterodox perspective: impact of the subprime crisis in Mexico

Abstract

This article presents a theoretical and empirical reflection on the role of the financial system in the economic cycle from a heterodox perspective. It discusses the process of international financial deregulation and its implementation in Mexico, followed by an analysis of the Mexican economic cycle after the subprime crisis. It also states that financial liberalization generated greater volatility in financial markets, increased the level of debt, generated speculative bubbles and excessive risks that financial institutions had to assume. A critical stance is taken against the belief that a market-based economy is the only natural form of economic organization and how this assumption has influenced financialization. Therefore, the effects of financial deregulation and financialization on the Mexican economy are highlighted, as well as the challenges the country faces in its dependence on international financial markets. The first part of the text focuses on the differentiating perspectives of the business cycle, comparing the orthodox and heterodox approaches. It then delves into Mexico's insertion in the process of financial globalization and how the distance between the economic and the financial has widened after the 2008 financial crisis.