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

  • Schnabl, Gunther
  • Hoffmann, Andreas

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.

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File URL: https://mpra.ub.uni-muenchen.de/5201/1/MPRA_paper_5201.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5201.

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Date of creation: 10 Sep 2007
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Handle: RePEc:pra:mprapa:5201
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  1. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
  2. Greiber, Claus & Setzer, Ralph, 2007. "Money and housing: evidence for the euro area and the US," Discussion Paper Series 1: Economic Studies 2007,12, Deutsche Bundesbank, Research Centre.
  3. 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.
  4. Ronald I. McKinnon & Kenichi Ohno, 1997. "Dollar and Yen: Resolving Economic Conflict between the United States and Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133350, June.
  5. 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.
  6. Schnabl, Gunther, 2008. "Exchange rate volatility and growth in small open economies at the EMU periphery," Economic Systems, Elsevier, vol. 32(1), pages 70-91, March.
  7. Richard Herring & Susan Wachter, . "Bubbles in Real Estate Markets," Zell/Lurie Center Working Papers 402, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  8. 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.
  9. Gerhard Illing, 2001. "Financial Fragility, Bubbles and Monetary Policy," CESifo Working Paper Series 449, CESifo Group Munich.
  10. Ronald Ian McKinnon & Gunther Schnabl, 2006. "China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Déjà Vu?," CESifo Working Paper Series 1720, CESifo Group Munich.
  11. Michael M. Hutchison & Takatoshi Ito & Frank Westermann, 2005. "The Great Japanese Stagnation: Lessons for Industrial Countries," EPRU Working Paper Series 05-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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