The Critical Stage

Charles P. Kindleberger and Robert Z. Aliber

Chapter 5 in Manias, Panics and Crashes, 2005, pp 77-96 from Palgrave Macmillan

Abstract: Abstract The standard model of the sequence of events that leads to financial crises is that a shock leads to an economic expansion that then morphs into an economic boom; euphoria develops and then there is a pause in the increase in asset prices. Distress is likely to follow as asset prices begin to decline. The pattern is biological in its regularity. A panic is likely and then a crash may follow. Lord Overstone, the leading British banker of the middle of the nineteenth century, saw a similar pattern and was quoted with approval by Walter Bagehot: ‘quiescence, improvement, confidence, prosperity, excitement, overtrading, CONVULSION [sic], pressure, stagnation, ending again in quiescence’.1 Overstone identified five stages of euphoria before the financial crisis, or, in his words, the convulsion.

Keywords: Interest Rate; Real Estate; Asset Price; Mutual Fund; Federal Reserve (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-62804-5_5

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DOI: 10.1057/9780230628045_5

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