Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble?

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Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble?

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Orlowski, Lucjan T

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Lucjan T. Orlowski

Abstract

This study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market; spillovers into broader credit market; the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns and Lehman Brothers with counterparty risk effects on other financial institutions; the commodity price bubble, and the ultimate demise of investment banking in the U.S. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings coupled with excessive credit creation, which lead to over-pricing of varied types of assets. The study calls such process a “wandering asset-price bubble”. Unstable allocations elevate market, credit and liquidity risks. Monetary policy responses aimed at stabilizing financial markets are proposed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12696.

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Date of creation: 10 Dec 2008
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Handle: RePEc:pra:mprapa:12696

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Paper
- Orlowski, Lucjan T., 2008. "Stages of the 2007/2008 Global Financial Crisis Is There a Wandering Asset-Price Bubble?," Economics Discussion Papers 2008-43, Kiel Institute for the World Economy. [Downloadable!]

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-01-17 (All new papers)
NEP-BAN-2009-01-17 (Banking)
NEP-FMK-2009-01-17 (Financial Markets)
NEP-MAC-2009-01-17 (Macroeconomics)
NEP-RMG-2009-01-17 (Risk Management)
NEP-URE-2009-01-17 (Urban & Real Estate Economics)

References listed on IDEAS
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Other versions:
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Other versions:
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