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

  • Hoffmann, Andreas
  • Schnabl, Gunther

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://mpra.ub.uni-muenchen.de/18532/1/MPRA_paper_18532.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18532.

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Date of creation: Nov 2009
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Handle: RePEc:pra:mprapa:18532
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  1. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  2. 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.
  3. Martin S. Feldstein, 2009. "Rethinking the Role of Fiscal Policy," NBER Working Papers 14684, National Bureau of Economic Research, Inc.
  4. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan Standard," Working Papers 88, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. Gunther Schnabl, 2009. "Asymmetrische makropolitiken und eingetrübte wachstumsperspektiven," Wirtschaftsdienst, Springer, vol. 89(10), pages 660-664, October.
  6. Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, 09.
  7. 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.
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