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Bubbles, Crises, and Policy

Author

Listed:
  • Allen, Franklin
  • Gale, Douglas

Abstract

In many recent cases financial liberalization has led to a bubble in asset prices. The bursting of the bubble results in a banking crisis and recession. It is suggested such bubbles are caused by an interaction of the risk-shifting problem arising from agency relationships in intermediaries and uncertainty concerning the expansion of credit. Two important policy objectives are identified. The first is the prevention of bubbles in asset prices. The second is minimizing the impact of spillovers on to the real economy during post-bubble banking crises. The different policy approaches taken in Norway and Japan are compared. Copyright 1999 by Oxford University Press.

Suggested Citation

  • Allen, Franklin & Gale, Douglas, 1999. "Bubbles, Crises, and Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 9-18, Autumn.
  • Handle: RePEc:oup:oxford:v:15:y:1999:i:3:p:9-18
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    Cited by:

    1. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
    2. Mioara CHIRITA & Daniela SARPE, 2011. "Usefulness of Artificial Neural Networks for Predicting Financial and Economic Crisis," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 44-48.
    3. repec:ces:ifodic:v:7:y:2009:i:3:p:14567082 is not listed on IDEAS
    4. Honkapohja, Seppo, 2014. "Financial crises: Lessons from the Nordic experience," Journal of Financial Stability, Elsevier, vol. 13(C), pages 193-201.
    5. Kleimeier, Stefanie & Versteeg, Roald, 2010. "Project finance as a driver of economic growth in low-income countries," Review of Financial Economics, Elsevier, vol. 19(2), pages 49-59, April.
    6. Challe Edouard & Ragot Xavier, 2011. "Bubbles and Self-Fulfilling Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-38, May.
    7. Neil Crosby & Cathy Hughes, 2011. "The Basis of Valuations for Secured Commercial Property Lending in the UK," Real Estate & Planning Working Papers rep-wp2011-02, Henley Business School, Reading University.
    8. Takashi Kamihigashi, 2008. "The spirit of capitalism, stock market bubbles and output fluctuations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(1), pages 3-28.
    9. repec:eee:japwor:v:46:y:2018:i:c:p:56-63 is not listed on IDEAS
    10. Seppo Honkapohja, 2011. "Re-establishing Growth After the Crisis – Lessons from the Nordic Countries," Chapters,in: Post-Crisis Growth and Integration in Europe, chapter 3 Edward Elgar Publishing.
    11. Grossi, Michele & Tamborini, Roberto, 2012. "Stock prices and monetary policy: Re-examining the issue in a New Keynesian model with endogenous investment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-47.
    12. Bergman, U. Michael & Hansen, Jan, 2002. "Financial Instability and Monetary Policy: The Swedish Evidence," Working Paper Series 137, Sveriges Riksbank (Central Bank of Sweden).
    13. repec:eee:finlet:v:25:y:2018:i:c:p:124-130 is not listed on IDEAS
    14. Øyvind Eitrheim & Bjarne Gulbrandsen, 2001. "A model based approach to analysing financial stability," BIS Papers chapters,in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 311-330 Bank for International Settlements.
    15. Miguel Segoviano, 2006. "Conditional Probabilty of Default Methodolgy," FMG Discussion Papers dp558, Financial Markets Group.
    16. Hansen, Jan, 2003. "Financial Cycles and Bankruptcies in the Nordic Countries," Working Paper Series 149, Sveriges Riksbank (Central Bank of Sweden).
    17. Kambhampati, Uma S., 2006. "Financial liberalisation, corporate governance and the efficiency of firms in Indian manufacturing," Structural Change and Economic Dynamics, Elsevier, vol. 17(1), pages 46-69, January.
    18. Masaharu Hanazaki & Akiyoshi Horiuchi, 2001. "Can the Financial Restraint Hypothesis Explain Japan's Postwar Experience?," CIRJE F-Series CIRJE-F-130, CIRJE, Faculty of Economics, University of Tokyo.
    19. Aldean, Cory, 2010. "Financial crisis response plan," MPRA Paper 28166, University Library of Munich, Germany, revised 27 Jan 2011.
    20. Su, Chi-Wei & Li, Zheng-Zheng & Chang, Hsu-Ling & Lobonţ, Oana-Ramona, 2017. "When Will Occur the Crude Oil Bubbles?," Energy Policy, Elsevier, vol. 102(C), pages 1-6.
    21. B. Espen Eckbo, 2010. "Banking System Bailout-Scandinavian Style," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(3), pages 85-93.
    22. Gerlach-Kristen, Petra & Mc Inerney, Niall, 2014. "The Role of Credit in the Housing Market," Papers WP495, Economic and Social Research Institute (ESRI).
    23. Michael Diemer & Uwe Vollmer, 2015. "What makes banking crisis resolution difficult? Lessons from Japan and the Nordic Countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 251-277, December.
    24. Heeho Kim & SaeWoon Park & Sun Hye Lee, 2012. "House Price and Bank Lending in a Premium Submarket in Korea," International Real Estate Review, Asian Real Estate Society, vol. 15(1), pages 1-42.

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