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The paper examines three aspects of a financial crisis of domestic origin. The first section studies the evolution of a debt-financed consumption boom supported by rising asset prices, leading to a credit crunch and fluctuations in the real economy, and, ultimately, to debt deflation. The next...
Persistent link: https://www.econbiz.de/10003974885
of financial bubbles depress the real economy? This paper addresses these questions by constructing an infinite …-horizon heterogeneous agent general equilibrium model with speculative bubbles. We characterize conditions under which storable goods …, regardless of their intrinsic values, can carry bubbles and agents are willing to invest in such bubbles despite their positive …
Persistent link: https://www.econbiz.de/10013158843
's q ratio displays regular cycles of bubbles and crashes reflecting an agency problem between investors and producers. The … ; financial bubbles ; stock markets ; booms and crashes ; Tobin's q ; business cycles ; economic rents …
Persistent link: https://www.econbiz.de/10009547387
; misvaluation, bubbles ; real effects of financial markets …
Persistent link: https://www.econbiz.de/10009736657
Persistent link: https://www.econbiz.de/10003425629
Motivated by the apparent failure of the credit multiplier mechanism (CM) to deliver amplification in DSGE models, we re-examine its role in business cycles to address the question: is something wrong with the CM? Our answer is no. In coming to this answer we construct a model with reproducible...
Persistent link: https://www.econbiz.de/10009762039
Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of …
Persistent link: https://www.econbiz.de/10013115731
The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore...
Persistent link: https://www.econbiz.de/10012903888
-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative … bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about downside tail scenarios can explain … the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but …
Persistent link: https://www.econbiz.de/10013238441
This paper stresses a new channel through which global financial linkages contribute to the co-movement in economic activity across countries. We show in a two-country setting with borrowing constraints that international credit markets are subject to self-fulfilling variations in the world real...
Persistent link: https://www.econbiz.de/10011911509