Bubbles, banks and financial stability

Kosuke Aoki and Kalin Nikolov

Journal of Monetary Economics, 2015, vol. 74, issue C, 33-51

Abstract: The macroeconomic impact of rational bubbles in a limited commitment economy crucially depends on whether banks or ordinary savers hold the bubble. Banks hold the bubble asset when their leverage is high, when long-term real interest rates are low or when lax supervision allows them to enjoy high deposit insurance subsidies. When banks are the bubble-holders, this amplifies the output boom by reducing loan–deposit rate spreads while the bubble survives but also deepens the recession when the bubble bursts. In contrast, the real impact of bubbles held by ordinary savers is more muted.

Keywords: Rational bubbles; Banks; Credit frictions (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393215000616
Full text for ScienceDirect subscribers only

Related works:
Journal Article: Bubbles, banks and financial stability (2012)
Working Paper: Bubbles, banks and financial stability (2012)
Working Paper: Bubbles, banks and financial stability (2012)
Working Paper: Bubbles, Banks, and Financial Stability (2011)
Working Paper: Bubbles, Banks, and Financial Stability (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:74:y:2015:i:c:p:33-51

DOI: 10.1016/j.jmoneco.2015.05.002

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().