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Financial Crash, Commodity Prices, and Global Imbalances

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  • Gourinchas, Pierre-Oliver
  • Farhi, Emmanuel
  • Caballero, Ricardo J.

Abstract

The current financial crisis has its origins in global asset scarcity, which led to large capital flows toward the United States and to the creation of asset bubbles that eventually burst. In its first phase the crash exacerbated the shortage of assets in the world economy, which triggered a partial re-creation of the bubble in commodities markets, and oil markets in particular. This bubble in turn led to an increase in petrodollars seeking financial assets in the United States, which became a source of stability for the U.S. external balance. The second phase of the crisis is more conventional and began to emerge in the summer of 2008, when it became apparent that the financial crisis would permeate the real economy and sharply slow global growth. This slowdown worked to reverse the tight commodity market conditions required for a bubble to develop, ultimately destroying the commodity bubble.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3229095.

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Date of creation: 2008
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Publication status: Published in Brookings Papers on Economic Activity
Handle: RePEc:hrv:faseco:3229095

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  1. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
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  3. Ricardo J Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An equilibrum model of "global imbalances" and low interest rates," BIS Working Papers 222, Bank for International Settlements.
  4. Daniel O. Beltran & Laurie Pounder & Charles Thomas, 2008. "Foreign exposure to asset-backed securities of U.S. origin," International Finance Discussion Papers 939, Board of Governors of the Federal Reserve System (U.S.).
  5. Blanchard, Olivier & Giavazzi, Francesco & Sa, Filipa, 2005. "The US Current Account and the Dollar," CEPR Discussion Papers 4888, C.E.P.R. Discussion Papers.
  6. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
  7. Markus K. Brunnermeier, 2008. "Deciphering the Liquidity and Credit Crunch 2007-08," NBER Working Papers 14612, National Bureau of Economic Research, Inc.
  8. William D. Nordhaus, 1980. "Oil and Economic Performance in industrial Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 341-400.
  9. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333 National Bureau of Economic Research, Inc.
  10. Boyan Jovanovic, 2008. "Bubbles in Prices of Exhaustible Resources," 2008 Meeting Papers 26, Society for Economic Dynamics.
  11. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "International Investors, the U.S. Current Account, and the Dollar," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 1-66.
  12. Roy, Joyashree & Sanstad, Alan H. & Sathaye, Jayant A. & Khaddaria, Raman, 2006. "Substitution and price elasticity estimates using inter-country pooled data in a translog cost model," Energy Economics, Elsevier, vol. 28(5-6), pages 706-719, November.
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