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Modelling Financial Instability

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  • Allen, Franklin

Abstract

Financial instability can have large adverse effects on an economy. One major cause of instability is asset price bubbles. This paper starts by considering how such bubbles can arise due to the expansion of money and credit. The ways in which subsequent financial instability occurs are then discussed. Banking crises can arise due to panics or as a result of the business cycle. Contagion and financial fragility can cause small disturbances to have large effects. Finally, policy issues are touched upon.

Suggested Citation

  • Allen, Franklin, 2005. "Modelling Financial Instability," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192, pages 57-67, April.
    • Handle: RePEc:cup:nierev:v:192:y:2005:i::p:57-67_7
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    Cited by:

    1. repec:zbw:bofrdp:2007_015 is not listed on IDEAS
    2. David Zimmer, 2015. "Asymmetric dependence in house prices: evidence from USA and international data," Empirical Economics, Springer, vol. 49(1), pages 161-183, August.
    3. Pesola, Jarmo, 2007. "Financial fragility, macroeconomic shocks and banks' loan losses: evidence from Europe," Bank of Finland Research Discussion Papers 15/2007, Bank of Finland.
    4. Pesola, Jarmo, 2007. "Financial fragility, macroeconomic shocks and banks' loan losses : evidence from Europe," Research Discussion Papers 15/2007, Bank of Finland.
    5. Essid, Zina & Boujelbene, Younes & Plihon, Dominique, 2014. "Institutional quality and bank instability: cross-countries evidence in emerging countries," MPRA Paper 56251, University Library of Munich, Germany.

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