Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble?
AbstractThis 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12696.
Date of creation: 10 Dec 2008
Date of revision:
subprime mortgage crisis; credit crisis; liquidity crisis; market risk; credit risk; default risk; counterparty risk; collateralized debt obligations; Level 3 Assets; Basel II;
Other versions of this item:
- 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.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- 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; Micro Finance 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)
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