Leveraged Bubbles

Leveraged Bubbles

What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms, asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous phenomenon.

Òscar Jordà, Moritz Schularik, and Alan M. Taylor

National Bureau of Economic Research Working Paper no. 21486

August 2015

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By |2018-01-01T00:00:00-08:00January 1st, 2018|Financial Regulation, Reference, Systemic Risk/Financial Crises|