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Some Important Characteristics of Asset Bubbles and Financial Crises

Author

Listed:
  • Paul S. L. Yip

    (Department of Economics, Nanyang Technological University, Singapore)

Abstract

This paper first discusses the major characteristics of the seeding stage, the development stage and the final stage of an asset bubble. In particular, it emphasizes the role of expectation, some major changes in economic behaviors, financial leveraging, some important vicious cycles, upward spirals and herding behavior in the eventual development of an asset bubble. Thereafter, it discusses the policy implications of such an analysis. The second half of the paper extends the discussion to some important changes in economic behaviors, financial deleveraging, vicious cycles and downward spirals that would push an early-developed financial crisis into a full-blown economic crisis. Based on the characteristics and the experience of some major financial crises in the past few decades, the paper discusses policy measures that could be adopted during the crisis period and the post-crisis recession.

Suggested Citation

  • Paul S. L. Yip, 2018. "Some Important Characteristics of Asset Bubbles and Financial Crises," Economic Growth Centre Working Paper Series 1805, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:1805
    as

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    File URL: http://www3.ntu.edu.sg/hss2/egc/wp/2018/2018-05.pdf
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    References listed on IDEAS

    as
    1. Stephen G. Cecchetti, 2009. "Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 51-75, Winter.
    2. Jeffrey A. Frankel & Kenneth A. Froot, 1986. "The Dollar as Speculative Bubble: A Tale of Fundamentalists and Chartists," NBER Working Papers 1854, National Bureau of Economic Research, Inc.
    3. Frederic S. Mishkin, 2011. "Over the Cliff: From the Subprime to the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 49-70, Winter.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    asset bubble; financial crisis; expectation of asset inflation; changes in economic behaviors; vicious cycles; financial leveraging and deleveraging; herding behavior; Quantitative Easing.;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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