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Geldpolitik, vagabundierende Liquidität und platzende Blasen in neuen und Aufstrebenden Märkten
[Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets]

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Author Info
Schnabl, Gunther
Hoffmann, Andreas

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Abstract

We show how since the mid 1980s expansionary monetary policies in the large economies and “vagabonding liquidity” have contributed to bubbles in the new and emerging markets. Based on the monetary overinvestment theories of Hayek and Wicksell we describe a wave of bubbles and crises that was initiated in Japan by an expansionary monetary policy in the mid 1980s. After the burst of the Japanese bubble and sharply declining interest rates in Japan, carry trade transmitted the bubbles to East Asia (Asian crisis) and the new markets in the developed economies. After the end of the irrational exuberance in the new markets, new bubbles emerged in the US real estate market and possibly currently in China and Central and Eastern Europe. Because particularly Japan and the US have tended to lower interest rates in response to financial crisis, the low interest rate policies in the large countries and thereby speculative exaggerations may continue. According to Wicksell and Hayek a higher level of interest rates in the large countries would reveal the structural distortions that have come along with the ample liquidity supply.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4019.

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Date of creation: 05 Apr 2007
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Handle: RePEc:pra:mprapa:4019

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Related research
Keywords: Bubbles Boom-bust cycles Capital Flows Emerging Markets Hayek Wicksell.

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June. [Downloadable!] (restricted)
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  2. Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 03001, Stanford University, Department of Economics. [Downloadable!]
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This page was last updated on 2008-11-17.


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