Advanced Search
MyIDEAS: Login

Beyond Bubbles: The role of asset prices in early-warning indicators

Contents:

Author Info

  • Esteban Gómez

    ()

  • Sandra Rozo

    ()

Abstract

Asset prices have recently become a common topic in economic debate. Nevertheless,much time has been spent in determining if they e®ectively exhibit a bubble component,and not in examining whether asset prices a®ectively contain relevant information concern-ing future market developments. This paper is a ¯rst e®ort in Colombia in this direction,aimed towards the construction of early ¡ warning indicators using ¯nancial and realvariables. Results show evidence to support that there is relevant information embeddedin these series, as all indicators (except the new housing price indicator) show a signif-icant deviation for the year(s) prior to the 98-99 crisis. Additionally, the exercises hereconducted show that the performance of asset price indicators is enhanced by includingcredit and investment. When the early-warning indicators are on, the role of the policymaker should be more active in the market; not necessarily in terms of altering interestrates, but in communicating with market agents, promoting portfolio and perspective (i.e.short and long-term) diversi¯cation and urging ¯nancial agents to make the best use ofthe tools that are available to them.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.banrep.gov.co/docum/ftp/borra457.pdf
Download Restriction: no

Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 004245.

as in new window
Length: 30
Date of creation: 17 Sep 2007
Date of revision:
Handle: RePEc:col:000094:004245

Contact details of provider:

Related research

Keywords: Asset Price Bubbles; Early-Warning Indicators; Present Value Model; Finan-cial Crisis; Prudential Regulation.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Froot, Kenneth A & Obstfeld, Maurice, 1991. "Intrinsic Bubbles: The Case of Stock Prices," American Economic Review, American Economic Association, vol. 81(5), pages 1189-214, December.
  2. Diba, Behzad T & Grossman, Herschel I, 1988. "The Theory of Rational Bubbles in Stock Prices," Economic Journal, Royal Economic Society, vol. 98(392), pages 746-54, September.
  3. Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
  4. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  5. Coudert, V. & Gex, M., 2006. "Can risk aversion indicators anticipate financial crises?," Financial Stability Review, Banque de France, issue 9, pages 67-87, December.
  6. Fernando Tenjo Galarza & Luisa F. Charry & Martha López P. & Juan M.Ramírez C., . "Acelerador Financiero y Ciclos Económicos en Colombia: Un Ejercicio Exploratorio," Borradores de Economia 451, Banco de la Republica de Colombia.
  7. Cochrane, John H, 1992. "Explaining the Variance of Price-Dividend Ratios," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 243-80.
  8. Behzad T. Diba & Herschel I. Grossman, 1987. "Rational bubbles in stock prices?," Working Papers 87-20, Federal Reserve Bank of Philadelphia.
  9. Refet S. Gürkaynak, 2005. "Econometric tests of asset price bubbles: taking stock," Finance and Economics Discussion Series 2005-04, Board of Governors of the Federal Reserve System (U.S.).
  10. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
  11. 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.
  12. Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  13. Kenneth D. West, 1986. "A Specification Test for Speculative Bubbles," NBER Working Papers 2067, National Bureau of Economic Research, Inc.
  14. Dezhbakhsh, Hashem & Demirguc-Kunt, Asli, 1990. "On the Presence of Speculative Bubbles in Stock Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(01), pages 101-112, March.
  15. van Norden Simon & Vigfusson Robert, 1998. "Avoiding the Pitfalls: Can Regime-Switching Tests Reliably Detect Bubbles?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(1), pages 1-24, April.
  16. Robert P. Flood & Robert J. Hodrick & Paul Kaplan, 1986. "An Evaluation of Recent Evidence on Stock Market Bubbles," NBER Working Papers 1971, National Bureau of Economic Research, Inc.
  17. Driffill, John & Sola, Martin, 1998. "Intrinsic bubbles and regime-switching," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 357-373, July.
  18. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-30, September.
  19. Sa, S., 2006. "Capital flows and credit booms in emerging market economies?," Financial Stability Review, Banque de France, issue 9, pages 49-66, December.
  20. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-30, June.
  21. Wu, Yangru, 1997. "Rational Bubbles in the Stock Market: Accounting for the U.S. Stock-Price Volatility," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 309-19, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Esteban Gómez & Andrés Murcia & Nancy Zamudio, 2011. "Financial Conditions Index: Early and Leading Indicator for Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  2. Ponomarenko, Alexey, 2013. "Early warning indicators of asset price boom/bust cycles in emerging markets," Emerging Markets Review, Elsevier, vol. 15(C), pages 92-106.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:col:000094:004245. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Norma Judith Paternina).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.