Asset Bubbles and Bailout
AbstractThis paper theoretically investigates the relationship between asset price bubbles and bailout. We show that although bailout may mitigate adverse eÂ¤ects of bubbles' bursting ex-post, it is more likely to cause asset price bubbles by encouraging risk-taking behavior ex-ante. In other words, bubbles are more likely to occur, the more government bailout is anticipated. Moreover, when productivity is relatively low, the anticipated bailout accelerates bubbly booms and creates large bubbles, which results in a large scale government intervention when bubbles collapse.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-838.
Length: 39 pages
Date of creation: Jan 2012
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