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Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View

Author

Listed:
  • Schnabl, Gunther
  • Hoffmann, Andreas

Abstract

Credit booms have globally fuelled hikes in stock, raw material and real estate markets which have culminated in the recent US subprime market crisis. We explain the global asset market booms since the mid 1980s based on the overinvestment theories of Hayek, Wicksell and Schumpeter. We argue that ample liquidity supply originating in the large industrialized countries has contributed to overinvestment cycles in Japan, East Asia, new markets in the industrial countries and many emerging market economies. Expansionary monetary policies in response to the burst of bubbles are argued to have contributed to vagabonding bubbles around the globe.

Suggested Citation

  • Schnabl, Gunther & Hoffmann, Andreas, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View," MPRA Paper 5201, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:5201
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    File URL: https://mpra.ub.uni-muenchen.de/5201/1/MPRA_paper_5201.pdf
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    References listed on IDEAS

    as
    1. Peter Backé & Balázs Égert, 2006. "Credit Growth in Central and Eastern Europe: New (Over)Shooting Stars?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 112-139.
    2. Gunther Schnabl, 2009. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," Open Economies Review, Springer, vol. 20(4), pages 565-587, September.
    3. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bubbles; Boom-Bust Cycles; Hayek; Wicksell; Schumpeter; Emerging Markets; Capital Flows; Overinvestment Theories;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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