The international transmission of credit bubbles: theory and policy

Jaume Ventura and Alberto Martin
Additional contact information
Jaume Ventura: CREI

No 1046, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We live in a new world economy characterized by financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic effects at home and are quickly propagated abroad. In previous work, we built on the theory of rational bubbles to develop a framework to think about the origins and domestic effects of these credit bubbles. This paper extends that framework to two-country setting and studies the channels through which credit bubbles are transmitted across countries. We find that there are two main channels that work through the interest rate and the terms of trade. The former constitutes a negative spillover, while the latter constitutes a negative spillover in the short run but a positive one in the long run. We study both cooperative and noncooperative policies in this world. The interest-rate and terms-of-trade spillovers produce policy externalities that make the noncooperative outcome suboptimal.

Date: 2015
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_1046.pdf (application/pdf)

Related works:
Journal Article: The international transmission of credit bubbles: Theory and policy (2015)
Working Paper: The International Transmission of Credit Bubbles: Theory and Policy (2015)
Working Paper: The International Transmission of Credit Bubbles: Theory and Policy (2015)
Working Paper: The International Transmission of Credit Bubbles: Theory and Policy (2015)
Working Paper: The international transmission of credit bubbles: theory and policy (2015)
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:red:sed015:1046

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().