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Bubbles, Banks, and Financial Stability (Aoki K., Nikolov K.)

Bank Profitability Financial Crises Stability&Soundness

Abstract This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2)When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by ordinary savers have relatively muted effects. Banks tend to invest in bubbles when financial liberalisation decreases their profitability.
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Libref/ Aoki K., Nikolov K. (2011) "Bubbles, Banks, and Financial Stability", Bank of Japan IMES Discussion Paper No 11-E-24
© Программирование — Александр Красильников, 2008
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