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Bubbles, Credit, and Their Consequences

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Abstract

The collapse of an asset price bubble usually creates a great deal of economic disruption. But bubbles are hard to anticipate and costly to deflate. As a result, policymakers struggle to determine how they should respond, if at all. Evaluating the economic costs of past equity and real estate bubbles?with particular attention to how much credit grew during boom phases?can provide valuable insights for this debate. A recent study finds that equity bubbles are relatively benign. More danger comes from housing bubbles in which credit grows rapidly.

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  • Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2016. "Bubbles, Credit, and Their Consequences," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00105
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    1. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2016. "The great mortgaging: housing finance, crises and business cycles," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 31(85), pages 107-152.
    2. Michael D. Bordo & Olivier Jeanne, 2002. "Monetary Policy and Asset Prices: Does ‘Benign Neglect’ Make Sense?," International Finance, Wiley Blackwell, vol. 5(2), pages 139-164.
    3. repec:bla:intfin:v:5:y:2002:i:2:p:139-64 is not listed on IDEAS
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    1. Caspi, Itamar & Graham, Meital, 2018. "Testing for bubbles in stock markets with irregular dividend distribution," Finance Research Letters, Elsevier, vol. 26(C), pages 89-94.

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