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Financial Institution, Asset Bubbles and Economic Performance

Author

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  • Tomohiro Hirano

    (Financial Research and Training Center, Financial Services Agency, The Japanese Government)

  • Noriyuki Yanagawa

    (Faculty of Economics, University of Tokyo)

Abstract

This paper explores the relation between the quality of financial institution and asset bubbles. In this paper, we will show that bubbles can improve the macro performance even if the quality of financial institution is very poor and the financial market does not work well. In this sense, the high quality of financial institution and bubbles are substitutes. We will explore, however, that they are not perfect substitutes. Bubbles may burst. If bubbles burst, the economic performance must go down if the quality of financial institution is low. Hence, we will show that not relaying on bubbles, but improving the quality of financial institution is important for long run macro performance.

Suggested Citation

  • Tomohiro Hirano & Noriyuki Yanagawa, 2010. "Financial Institution, Asset Bubbles and Economic Performance," CIRJE F-Series CIRJE-F-767, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2010cf767
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    References listed on IDEAS

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    1. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
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