Bubbles and nominal wage rigidity
The fundamental source of inefficiencies in this paper is the interaction between financial frictions and nominal rigidities. Financial frictions are the key ingredient for creating an environment that is fertile for bubbles, whose booms and busts can lead to booms and busts in credit and investment. But financial frictions alone are not sufficient to create a post bubble secular stagnation. It is the combination of financial frictions and nominal rigidities that introduces a form of “bubbly pecuniary externality,” as individual bubble speculators
do not internalize the crowd-in effect of bubbles on investment.
Bubbly Recessions
Authors: Siddhartha Biswas, Andrew Hanson, Toan Phan
From:University of North Carolina at Chapel Hill, Federal Reserve Bank of Richmond
Bubbles and banks
Brunnermeier and al. in this paper analyze how asset price bubble affect systemic risk through their effect on financial institutions by taking the analysis of bubbles from the macroeconomic to the microeconomic level. Using a sample of banks from 17 OECD countries between 1987 and 2015, they show that asset price bubbles in stock and real estate markets raise systemic risk at the bank level. The severity of the effect depends on the characteristics of both the banks and the bubble.
Asset Price Bubbles and Systemic Risk
Authors: Markus Brunnermeier, Simon Rother, Isabel Schnabel
From: Princeton University, University of Bonn
