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Liquidity and asset market cycles

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  • Shin, Jong Kook

Abstract

We develop a theory of boom-bust cycle of rational bubbles capable of replicating some of the stylized patterns of the bubbly episodes which we document. Instead of relying on random investor sentiments to explain the cycle, we use the interplay of liquidity supply and economic fundamentals. Related policy implications are discussed.

Suggested Citation

  • Shin, Jong Kook, 2023. "Liquidity and asset market cycles," Economics Letters, Elsevier, vol. 226(C).
    • Handle: RePEc:eee:ecolet:v:226:y:2023:i:c:s0165176523001441
    DOI: 10.1016/j.econlet.2023.111119
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    References listed on IDEAS

    as
    1. Alberto Martin & Jaume Ventura, 2016. "Managing Credit Bubbles," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 753-789.
    2. Feng Dong & Jianjun Miao & Pengfei Wang, 2020. "Asset Bubbles and Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 68-98, August.
    3. Freixas, Xavier & Perez-Reyna, David, 2021. "Optimal macroprudential policy and rational bubbles," Journal of Financial Intermediation, Elsevier, vol. 46(C).
    4. Jong Kook Shin & Chetan Subramanian, 2019. "Asset Price Bubbles And Technological Innovation," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 482-497, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Rational bubbles; Regime switch; Business cycle;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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