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A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View

  • Andreas Hoffmann
  • Gunther Schnabl

The business cycles theories of Wicksell (1898), Schumpeter (1912), Mises (1912), Hayek (1929, 1935) and Minsky (1986, 1992) explain business cycles by distorted prices on capital markets, buoyant credit expansion and overinvestment. The exuberance during the boom endogenously causes the subsequent slump. While these theories put the emphasis on explaining the emergence of the cycle, this paper focuses on the macroeconomic policy responses during and after the crisis, when panic tightens credit supply. The paper allows an assessment of the long-term consequences of an asymmetric monetary and fiscal policy response to financial crisis.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-11/cesifo1_wp2855.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2855.

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Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2855
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  1. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan Standard," Working Papers 88, Princeton University, Department of Economics, Center for Economic Policy Studies..
  2. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  3. Andreas Hoffmann & Gunther Schnabl, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets – An Overinvestment View," CESifo Working Paper Series 2100, CESifo Group Munich.
  4. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-10, May.
  5. Martin S. Feldstein, 2009. "Rethinking the Role of Fiscal Policy," NBER Working Papers 14684, National Bureau of Economic Research, Inc.
  6. Gunther Schnabl, 2009. "Asymmetrische makropolitiken und eingetrübte wachstumsperspektiven," Wirtschaftsdienst, Springer, vol. 89(10), pages 660-664, October.
  7. 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.
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