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Asset bubbles, financial sector, and current challenges to regulatory framework

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  • Akaki Tsomaia

    (The University of Georgia)

Abstract

The manuscript examines the causes of asset price bubbles and financial crises. It studies the current challenges facing the regulatory framework of the financial system. We argue that the current model of regulations can not stop the emergence of either asset bubbles or financial crises in the future. In a causal relationship, the current system of regulations tends to deal with effects, that is the liquidity shortage during the recessions, and not with the causes which can be referred to as distorted financial intermediation. In fact, regulations seek to cure symptoms rather than disease. The rules look like antibiotics, against which the infection acquires immunity. We intuitively propose the idea/concept of how to modify the current system and believe that this concept should be taken into account when developing an effective regulatory framework for the financial system.

Suggested Citation

  • Akaki Tsomaia, 2021. "Asset bubbles, financial sector, and current challenges to regulatory framework," International Economics and Economic Policy, Springer, vol. 18(4), pages 901-925, October.
    • Handle: RePEc:kap:iecepo:v:18:y:2021:i:4:d:10.1007_s10368-021-00508-3
    DOI: 10.1007/s10368-021-00508-3
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    More about this item

    Keywords

    Asset Bubbles; Asset Pricing; Money Supply; Credit; Money; Monetary Policy; Central Banks and Their Policies; Government Policy and Regulation; Financial Institutions and Services; Economic History of Financial Crisis;
    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services
    • N2 - Economic History - - Financial Markets and Institutions

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