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A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View

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  • Andreas Hoffmann
  • Gunther Schnabl

Abstract

The business cycles theories of Wicksell (1898), Schumpeter (1912), Mises (1912), Hayek (1929, 1935) and Minsky (1986, 1992) explain business cycles by distorted prices on capital markets, buoyant credit expansion and overinvestment. The exuberance during the boom endogenously causes the subsequent slump. While these theories put the emphasis on explaining the emergence of the cycle, this paper focuses on the macroeconomic policy responses during and after the crisis, when panic tightens credit supply. The paper allows an assessment of the long-term consequences of an asymmetric monetary and fiscal policy response to financial crisis.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 34 (2011)
Issue (Month): 3 (03)
Pages: 382-403

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Handle: RePEc:bla:worlde:v:34:y:2011:i:3:p:382-403

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Andreas Hoffmann & Gunther Schnabl, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets – An Overinvestment View," CESifo Working Paper Series 2100, CESifo Group Munich.
  2. DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June.
  3. Martin S. Feldstein, 2009. "Rethinking the Role of Fiscal Policy," NBER Working Papers 14684, National Bureau of Economic Research, Inc.
  4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  5. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-10, May.
  6. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan Standard," Working Papers 88, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. Gunther Schnabl, 2009. "Asymmetrische makropolitiken und eingetrübte wachstumsperspektiven," Wirtschaftsdienst, Springer, vol. 89(10), pages 660-664, October.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Stop Preaching Emerging Countries, Blame Ben and VIX®
    by Shifting Wealth in ShiftingWealth on 2014-02-01 18:41:00
  2. Fiscal Stimulus, Growth Perspectives and Mal-incentives for Future Policy
    by Mario Rizzo in Think Markets on 2010-04-19 14:35:58
  3. Inflation as a Solution?
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Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Hoffmann, Andreas, 2011. "Determinants of carry trades in Central and Eastern Europe," Working Papers 102, University of Leipzig, Faculty of Economics and Management Science.
  2. Hoffmann, Andreas, 2012. "Did the Fed and ECB react asymmetrically with respect to asset market developments?," Working Papers 103, University of Leipzig, Faculty of Economics and Management Science.
  3. Andreas Hoffmann & Gunther Schnabl, 2011. "National Monetary Policy, Internatinal Economic Instability and Feeback Effects - An Overinvestment View," Global Financial Markets Working Paper Series 19-2011, Friedrich-Schiller-University Jena.
  4. Michael Schubert & Sebastian Watzka & Jörg Hinze & Leon Leschus & Gunther Schnabl, 2012. "Leitzinssenkung auf historischem Allzeittief: Welche Folgen hat die Niedrigzinspolitik der EZB?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 65(16), pages 3-19, 08.
  5. Gunther Schnabl & Holger Zemanek, 2010. "Inter-temporal Savings, Current Account Dynamics and Asymmetric Shocks in a Heterogeneous European Monetary Union," CESifo Working Paper Series 3279, CESifo Group Munich.
  6. Gunther Schnabl, 2014. "Der Weg in die Nullzins- und Hochverschuldungsfalle," Global Financial Markets Working Paper Series 2013-50, Friedrich-Schiller-University Jena.
  7. Hoffmann, Andreas & Urbansky, Björn, 2012. "Order, displacements and recurring financial crises," Working Papers 108, University of Leipzig, Faculty of Economics and Management Science.
  8. Jörg Asmussen & Gunther Schnabl, 2011. "Umbruch im Weltwährungssystem: Sollte die Zeit freier Wechselkurse beendet werden?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(07), pages 03-09, 04.
  9. Andreas Hoffmann, 2014. "Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets," ICER Working Papers 02-2014, ICER - International Centre for Economic Research.
  10. Elsamadisy, Elsayed Mousa & Alkhater, Khalid Rashid & Basher, Syed Abul, 2013. "Pre- versus Post-Crisis Central Banking in Qatar," MPRA Paper 45310, University Library of Munich, Germany.
  11. Claude Hillinger & Bernd Süssmuth & Marco Sunder, 2012. "The Quantity Theory of Money and Friedmanian Monetary Policy: An Empirical Investigation," CESifo Working Paper Series 3754, CESifo Group Munich.
  12. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.
  13. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.
  14. Andreas Hoffmann & Gunther Schnabl, 2014. "Monetary Policies of Large Industrialised Countries, Emerging Market Credit Cycles and Feedback Effects," CESifo Working Paper Series 4723, CESifo Group Munich.

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