Publication
Jan 2011
This paper proposes and tests a theory of credit-driven asset bubbles which are neutral in their real effects. When a lender such as a government, central bank, or banking sector is willing to lend infinitely against collateral, explosive asset bubbles can form which exactly offset a bubble in household liabilities. Surprisingly, evidence from a VAR using long-run restrictions supports the idea that asset bubbles are approximately neutral in their real effects before 2007. The evidence becomes more ambiguous if one includes post-2007 data, hinting that the post-2007 degree of co-movement between asset prices and output comes from an unusual regime.
Download |
English (PDF, 21 pages, 641 KB) |
---|---|
Author | Christopher Phillip Reicher |
Series | Kiel Institute Working Papers |
Issue | 1679 |
Publisher | Kiel Institute for the World Economy |
Copyright | © 2011 Kiel Institute for the World Economy |