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Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets – An Overinvestment View

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  • Andreas Hoffmann
  • Gunther Schnabl

Abstract

Credit booms have globally fuelled hikes in stock, raw material and real estate markets which have culminated in the recent US subprime market crisis. We explain the global asset market booms since the mid 1980s based on the overinvestment theories of Hayek, Wicksell and Schumpeter. We argue that ample liquidity supply originating in the large industrialized countries has contributed to overinvestment cycles in Japan, East Asia, the new markets in the industrial countries and many emerging market economies. Expansionary monetary policies in response to the burst of bubbles are argued to have contributed to vagabonding bubbles around the globe.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-09/cesifo1_wp2100.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2100.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2100

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Related research

Keywords: bubbles; boom-bust cycles; Hayek; Wicksell; Schumpeter; emerging markets; capital flows; overinvestment theories;

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  1. Michael M. Hutchison & Takatoshi Ito & Frank Westermann, 2005. "The Great Japanese Stagnation: Lessons for Industrial Countries," EPRU Working Paper Series 05-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 112003, Hong Kong Institute for Monetary Research.
  3. Peter Backé & Balázs Égert & Tina Zumer, 2006. "Credit Growth in Central and Eastern Europe: New (Over)Shooting Stars?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 112 - 139.
  4. Gerhard Illing, 2001. "Financial Fragility, Bubbles and Monetary Policy," CESifo Working Paper Series 449, CESifo Group Munich.
  5. Ronald McKinnon & Gunther Schnabl, 2006. "China's Exchange Rate and International Adjustment in Wages, Prices and Interest Rates: Japan Déjà Vu?," CESifo Economic Studies, CESifo, vol. 52(2), pages 276-303, June.
  6. Gunther Schnabl, 2007. "Exchange rate volatility and growth in small open economies at the EMU periphery," Working Paper Series 773, European Central Bank.
  7. Ronald I. McKinnon & Kenichi Ohno, 1997. "Dollar and Yen: Resolving Economic Conflict between the United States and Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133350, November.
  8. Greiber, Claus & Setzer, Ralph, 2007. "Money and housing: evidence for the euro area and the US," Discussion Paper Series 1: Economic Studies 2007,12, Deutsche Bundesbank, Research Centre.
  9. Gunther Schnabl, 2007. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," CESifo Working Paper Series 2023, CESifo Group Munich.
  10. Richard Herring & Susan Wachter, . "Bubbles in Real Estate Markets," Zell/Lurie Center Working Papers 402, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
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  1. Global Rebalancing: A Modest Role for the RMB
    by Shifting Wealth in ShiftingWealth on 2011-05-18 12:42:00
  2. Four Reasons Why The EXIT Will Fail
    by Mario Rizzo in Think Markets on 2009-11-10 02:46:02
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