New Perspectives on Asset Price Bubbles
Douglas D. Evanoff, George G. Kaufman, A. G. Malliaris
Oxford University Press, Feb 8, 2012 - Business & Economics - 480 pages
This volume critically re-examines the profession's understanding of asset bubbles in light of the global financial crisis of 2007-09. It is well known that bubbles have occurred in the past, with the October 1929 crash as the most demonstrative example. However, the remarkably well-behaved performance of the US economy from 1945 to 2006, and, in particular during the Great Moderation period of 1984 to 2006, assured the economics profession and monetary policymakers that asset bubbles could be effectively managed with little or no real economic impact. The recent financial crisis has now triggered a debate about the emergence of a sequence of repeated bubbles in the Nasdaq market, housing market, credit market, and commodity markets. The realities of the crisis have intensified theoretical modeling, empirical methodologies, and debate on policy issues surrounding asset price bubbles and their potentially adverse economic impact if poorly managed. Taking a novel approach, the editors of this book present five classic papers that represent accepted thinking about asset bubbles prior to the financial crisis. They also include original papers challenging orthodox thinking and presenting new insights. A summary essay highlights the lessons learned and experiences gained since the crisis.
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Overconfidence and Speculative Bubbles 283
Insights from Behavioral Finance 318
An Old Perspective on Asset Price Bubbles Policy
Monetary Policy and Stock Market Booms 353
The Need to Manage
ASSET BUBBLES CENTRAL BANKS
Do Bubbles Lead to Overinvestment? A Revealed
Why Central Banks
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agents aggregate analysis argue asset bubbles asset price bubbles assume assumption asymmetric information bad portfolio managers bank dependence Bank of Japan bank’s behavior Behavioral Finance bonds Borio borrowing bursting buyer capital central bank collateral cost crash crises debt default deregulation discount rate effects equation equilibrium equity estimates example expected inflation federal funds rate Federal Reserve Bank Figure financial crisis financial instability financial markets financial stability financial system forecast framework fundamental value funds Gorton housing bubble implies increase inflation targeting institutions International investors issue Japanese banks lenders lending leverage cycle liquidity loans macroeconomic macroprudential marginal Mark Gertler models of bubbles monetary authorities monetary policy optimal option output gap overconfidence overlapping generations model paper parameter period policy rule policymakers portfolio managers price volatility problem profits ratio risk Section securities shock simulations speculative stock market boom stock prices systemic risk Table trading U.S. dollar University variables