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The Critical Stage: When the Bubble Is About to Pop

In: Manias, Panics, and Crashes

Author

Listed:
  • Robert Z. Aliber

    (University of Chicago)

  • Charles P. Kindleberger

    (Massachusetts Institute of Technology)

  • Robert N. McCauley

    (Boston University
    University of Oxford)

Abstract

The Minsky model of the sequence of events that leads to a financial crisis is that a displacement sets off an economic expansion that morphs into an economic boom and then euphoria. In the process, credit and asset prices increase rapidly, much more rapidly than GDP. Then there is a slackening in the pace of these increases in equity and property prices. A few savvy or lucky investors sell some of their assets to park their recent gains in a secure store of value. The slowing of the increases in asset prices may induce a more cautious approach by others. Distress is likely to follow as asset prices begin to decline. The sequence is mechanical in its regularity. A panic is likely with crash to follow.

Suggested Citation

  • Robert Z. Aliber & Charles P. Kindleberger & Robert N. McCauley, 2023. "The Critical Stage: When the Bubble Is About to Pop," Springer Books, in: Manias, Panics, and Crashes, edition 8, chapter 0, pages 99-125, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-16008-0_5
    DOI: 10.1007/978-3-031-16008-0_5
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