Functions of economic policy in promoting the efficiency of the international financial system

Efficient financial markets are an essential requirement for a high level of employment, for adequate economic growth, for price stability. This is undisputed. What is disputed is whether the market system satisfies this requirement automatically and free of charge. Yes it does, say fellow economists arguing solely on the basis of neoclassical equilibrium theory, firmly entrenched behind their dogma of constantly infallible price signals from unregulated markets given the rational forming of expectations by economic agents. Others contest such automatism. For if the expectations of economic agents are heterogeneous, if the forming pattern changes, if elements of adaptive or extrapolative forming are occasionally identified, expectations will sometimes be determined by a single dominant issue rather than by all the information relevant to evaluation; information will be ignored; information uncertainties will increase to an extent where information fails to trigger appropriate transactions; the markets in a macroeconomic system will be linked at least intermittently by quantitative restrictions instead of by allocation-optimising relative price shifts, hence placing exclusively private-interest optimisation endeavours into a risky and thus not precisely known conjunction with results that are not fully informative; all this will trigger sequences of prices and yields in financial markets resulting in misdirected macroeconomic trends.