Capital inflows and booms in asset prices: Going beyond the current account

Eduardo Olaberría, 7 December 2013

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For decades, policymakers’ perception has been that large capital inflows can fuel booms in asset prices. If this were true, bonanzas in capital inflows would imply an important risk to financial stability, since booms in asset prices are leading indicators of financial crises.

Topics: Financial markets, International finance
Tags: asset prices, booms, bubbles, capital flows, Capital inflows, current account

Political Credit Cycles: The Case of the Euro Zone

Jesús Fernández-Villaverde, Luis Garicano, Tano Santos, 24 March 2013

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URL: www.cepr.org/pubs/dps/DP9404.asp.asp
Topics: Macroeconomic policy, Politics and economics
Tags: bubbles, Eurozone crisis, financial crisis, Political Economy

Understanding bubbly episodes

Jaume Ventura, Vasco M. Carvalho, Alberto Martin, 9 September 2012

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Wealth has fluctuated substantially in recent US macroeconomic history. Figure 1 below documents this by plotting the evolution of real net worth of US households and non-profit organisations between 1950 and 2010. Up until the early 1990s the evolution of wealth seems relatively stable, displaying only mild and short-lived fluctuations around its trend.

Topics: Global economy, International finance
Tags: asset bubbles, bubbles, US

Market psychology, high unemployment and rational bubbles

Roger E. A. Farmer , 18 August 2011

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According to a popular narrative (e.g. Shiller 2008), the Great Recession was caused by a bubble in the housing market. When the bubble burst, households were left with mortgages that exceeded the values of their houses. When they stopped spending, the resulting fall in consumer demand triggered an increase in unemployment.

Topics: Frontiers of economic research
Tags: bubbles, psychology, rational expectations, unemployment

Simple explanations for global financial instability and the cure: Keep it simple

Daniel Gros, Stefano Micossi, Jacopo Carmassi, 13 August 2009

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A remarkable feature of the burgeoning literature on the global financial crisis is vast disagreement about its main causes. Symptoms are often treated as autonomous developments requiring separate correction. There is thus a high risk that the legitimate pursuit of a more stable financial system will lead to a potpourri of excessive and damaging regulatory restrictions.

Topics: International finance
Tags: bubbles, financial crisis, leverage

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