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Asset Price Bubbles and Challenges to Central Banks


  • Junhan Kim


The experience from the 2007 - 2009 global financial crisis was a wake-up call for central bankers. In the past decade, central bankers around the world have become more confident that they can control economic fluctuations including inflation. Many countries have adopted inflation targeting as their monetary policy framework. The success of inflation targeting in combating inflation led central bankers to believe not only that they have conquered inflation but also that they can even flatten business cycles, ups and downs of economic activities such as consumption and investment. Inflation was well managed around what many believe as a level close to price stability, business cycles were mitigated, and a few isolated incidences of financial crises responded well to active interventions undertaken by central banks and governments.

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  • Junhan Kim, 2010. "Asset Price Bubbles and Challenges to Central Banks," Research Studies, South East Asian Central Banks (SEACEN) Research and Training Centre, number rp79.
  • Handle: RePEc:sea:rstudy:rp79

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    References listed on IDEAS

    1. Kim, Don H. & Loretan, Mico & Remolona, Eli M., 2010. "Contagion and risk premia in the amplification of crisis: Evidence from Asian names in the global CDS market," Journal of Asian Economics, Elsevier, vol. 21(3), pages 314-326, June.
    2. Michael B Devereux & James Yetman, 2010. "Financial deleveraging and the international transmission of shocks," BIS Papers chapters,in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 274-298 Bank for International Settlements.
    3. Byström, Hans N. E., 2005. "Credit Default Swaps and Equity Prices: The Itraxx CDS Index Market," Working Papers 2005:24, Lund University, Department of Economics, revised 15 May 2005.
    4. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
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