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A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View

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  • Hoffmann, Andreas
  • Schnabl, Gunther

Abstract

The business cycles theories of Wicksell (1898), Schumpeter (1912), Mises (1912), Hayek (1929, 1935) and Minsky (1986, 1992) explain business cycles by distorted prices on capital markets, buoyant credit expansion and overinvestment. The exuberance during the boom endogenously causes the subsequent slump. While these theories put the emphasis on explaining the emergence of the cycle, this paper focuses on the macroeconomic policy responses during and after the crisis, when panic tightens credit supply. The paper allows an assessment of the long-term consequences of an asymmetric monetary and fiscal policy response to financial crisis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18532.

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Date of creation: Nov 2009
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Handle: RePEc:pra:mprapa:18532

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Keywords: Manias; Bubbles; Austrian; Policy Responses;

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References

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  1. 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.
  2. Schnabl, Gunther & Hoffmann, Andreas, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View," MPRA Paper 5201, University Library of Munich, Germany.
  3. Martin Feldstein, 2009. "Rethinking the Role of Fiscal Policy," American Economic Review, American Economic Association, vol. 99(2), pages 556-59, May.
  4. Gunther Schnabl & Christian Danne, 2007. "A Role Model for China? Exchange Rate Flexibility and Monetary Policy in Japan," CESifo Working Paper Series 2051, CESifo Group Munich.
  5. Gunther Schnabl, 2009. "Asymmetrische makropolitiken und eingetrübte wachstumsperspektiven," Wirtschaftsdienst, Springer, vol. 89(10), pages 660-664, October.
  6. Douglas W. Diamond & Raghuram Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," NBER Working Papers 14739, National Bureau of Economic Research, Inc.
  7. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan Standard," Working Papers 88, Princeton University, Department of Economics, Center for Economic Policy Studies..
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Fiscal Stimulus, Growth Perspectives and Mal-incentives for Future Policy
    by Mario Rizzo in Think Markets on 2010-04-19 14:35:58
  2. Inflation as a Solution?
    by Mario Rizzo in Think Markets on 2010-02-16 14:11:47
  3. Estonia â?? The Return of a Baltic Tiger?
    by Mario Rizzo in Think Markets on 2010-02-06 20:16:47
  4. Greece as a Danger to Euro Stability
    by Mario Rizzo in Think Markets on 2010-01-30 15:42:27
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Cited by:
  1. Gunther Schnabl & Holger Zemanek, 2010. "Inter-temporal Savings, Current Account Dynamics and Asymmetric Shocks in a Heterogeneous European Monetary Union," CESifo Working Paper Series 3279, CESifo Group Munich.
  2. Hoffmann, Andreas, 2011. "Determinants of carry trades in Central and Eastern Europe," Working Papers 102, University of Leipzig, Faculty of Economics and Management Science.
  3. Jörg Asmussen & Gunther Schnabl, 2011. "Umbruch im Weltwährungssystem: Sollte die Zeit freier Wechselkurse beendet werden?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(07), pages 03-09, 04.
  4. Hoffmann, Andreas & Urbansky, Björn, 2012. "Order, displacements and recurring financial crises," Working Papers 108, University of Leipzig, Faculty of Economics and Management Science.
  5. Hoffmann, Andreas, 2012. "Did the Fed and ECB react asymmetrically with respect to asset market developments?," Working Papers 103, University of Leipzig, Faculty of Economics and Management Science.
  6. Michael Schubert & Sebastian Watzka & Jörg Hinze & Leon Leschus & Gunther Schnabl, 2012. "Leitzinssenkung auf historischem Allzeittief: Welche Folgen hat die Niedrigzinspolitik der EZB?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 65(16), pages 3-19, 08.
  7. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.
  8. Claude Hillinger & Bernd Süssmuth & Marco Sunder, 2012. "The Quantity Theory of Money and Friedmanian Monetary Policy: An Empirical Investigation," CESifo Working Paper Series 3754, CESifo Group Munich.

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