New Perspectives on Asset Price Bubbles

Overview


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 ...
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New Perspectives on Asset Price Bubbles

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Overview


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 Greenspan-Bernanke Federal Reserve has followed an asymmetric approach to bubble management. This method advocates no monetary policy action during the bubble formation and growth, but a speedy response with a reduction in market rates when a bubble bursts to reduce the potential loss of output and employment. It was supported by academic research and seemed to work well until September 2008 when the financial system came close to a complete collapse.

The realities of the recent financial crisis have intensified theoretical modeling, empirical methodologies, and debate on policy issues surrounding asset price bubbles and their potentially considerable adverse economic impact if poorly managed. Choosing to take a novel approach, the editors of this book have selected 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 by the editors highlights the lessons learned and experiences gained since the crisis.

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Product Details

  • ISBN-13: 9780199844333
  • Publisher: Oxford University Press
  • Publication date: 2/8/2012
  • Pages: 480
  • Product dimensions: 6.40 (w) x 9.40 (h) x 1.30 (d)

Meet the Author

Douglas D. Evanoff is a vice president and senior research advisor for banking issues at the Federal Reserve Bank of Chicago. His current research interests include asset bubbles, mortgage markets, and financial regulation. His research has been published in various journals and he has also edited a number of books addressing issues associated with financial institutions.

George G. Kaufman is the John Smith Professor of Finance and Economics at Loyola University Chicago. His research and teaching interests focus on the management and regulation of financial institutions and markets. He previously taught at the University of Oregon and was a visiting professor at Stanford and the University of California at Berkeley. He is the editor of the Journal of Financial Stability and a coeditor of five other journals. He is the past president of the Western Finance Association.

Anastasios G. Malliaris is currently Professor of Economics and Finance and holds the Walter F. Mullady Sr. Chair in Business Administration at Loyola University Chicago. He has authored and co-authored numerous articles in financial economics in several professional journals. He has had a long interest in asset price bubbles and financial instabilities.

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Table of Contents

Introduction

1. New Perspectives on Asset Price Bubbles: An Overview Douglas D. Evanoff, George G. Kaufman and A.G. Malliaris

Bubbles: Theory and Evidence

2. Churning Bubbles Franklin Allen and Gary Gorton. Seminal research paper: The Review of Economic Studies, Volume 60 (1993).

3. Rethinking Theoretical Models of Bubbles: Reflections Inspired by the Financial Crisis and the Allen and Gorton's Paper on Churning Bubbles Gadi Barlevy

Consequences of Bubbles Bursting

4. The Japanese Banking Crisis: Where Did it Come From and How Will it End? Takeo Hoshi and Anil K. Kashyap. Seminal research paper: NBER Macroeconomics Annual 1999, vol 14 (2000).

5. The Impact of the International Financial Crisis on Asia and the Pacific: Highlighting Monetary Policy Challenges from an Asset Price Bubble Perspective Andrew Filardo

Bubbles and Monetary Policy

6. Monetary Policy and Asset Price Volatility Ben Bernanke and Mark Gertler. Seminal research paper: Economic Review, Federal Reserve Bank of Kansas City (1999).

7. Monetary Policy and Asset price Volatility: Should We Refill the Bernanke-Gertler Prescription?
Kenneth N. Kuttner

Bubbles and Macroprudential Regulation

8. Towards a Macroprudential Framework for Financial Supervision and Regulation? http://www.bis.org/publ/work128.pdf Claudio Borio. Seminal research paper: CESifo Economic Studies, Volume 49 (2003).

9. Bank Liquidity and Bubbles: Why Central Banks Should Lean Against Liquidity Viral V. Acharya and Hassan Naqvi

Bubbles: Behavioral Explanations

10. Overconfidence and Speculative Bubbles Jose A. Scheinkman and Wei Xiong. Seminal research paper: Journal of Political Economy, Volume 111 (2003).

11. Asset Bubbles: Insights from Behavioral Finance Werner De Bondt

Bubbles: Keynote Presentations

12. An Old Perspective on Asset Price Bubbles Policy William Poole

13. Struggling to Escape From 'Assumption 14'
Benjamin M. Friedman

New Ideas on Asset Price Bubbles

14. Monetary Policy and Stock Market Booms Lawrence J. Christiano, Cosmin Ilut, Roberto Motto, and Massimo Rostagno

15. Leverage and Bubbles: The Need to Manage the Leverage Cycle John Geanakoplos

Asset Bubbles, Central Banks and Investments

16. Asset Price Bubbles and Central Bank Policies: The Crash of the Jackson Hole Consensus A. G. Malliaris

17. Do Bubbles Lead to Overinvestment? A Revealed Preference Approach Robert Chirinko and Huntley Schaller

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