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Asset Price Bubbles and Systemic Risk

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  • Markus Brunnermeier

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  • Simon Rother

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  • Isabel Schnabel

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Abstract

We analyze the relationship between asset price bubbles and systemic risk, using bank-level data covering almost thirty years. Systemic risk of banks rises already during a bubble’s build-up phase, and even more so during its bust. The increase differs strongly across banks and bubble episodes. It depends on bank characteristics (especially bank size) and bubble characteristics, and it can become very large: In a median real estate bust, systemic risk increases by almost 70 percent of the median for banks with unfavorable characteristics. These results emphasize the importance of bank-level factors for the build-up of financial fragility during bubble episodes.

Suggested Citation

  • Markus Brunnermeier & Simon Rother & Isabel Schnabel, 2019. "Asset Price Bubbles and Systemic Risk," CRC TR 224 Discussion Paper Series crctr224_2019_095, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2019_095
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    File URL: https://www.crctr224.de/en/research-output/discussion-papers/discussion-papers#DP095
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    Cited by:

    1. Efthymios Pavlidis & Ivan Paya & Alex Skouralis, 2019. "House Prices, (Un)Affordability and Systemic Risk," Working Papers 266072868, Lancaster University Management School, Economics Department.
    2. Tom Hudepohl & Ryan van Lamoen & Nander de Vette, 2019. "Quantitative easing and exuberance in stock markets: Evidence from the euro area," DNB Working Papers 660, Netherlands Central Bank, Research Department.
    3. Richters, Oliver & Siemoneit, Andreas, 2019. "Marktwirtschaft reparieren: Entwurf einer freiheitlichen, gerechten und nachhaltigen Utopie," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 213814, November.

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    More about this item

    Keywords

    Asset price bubbles; systemic risk; financial crises; credit booms; CoVaR; MES;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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