The Story of the Original Boom and Bust in Western Finance: The Mississippi Bubble

John E. Silvia ()

Chapter Chapter 2 in Financial Markets and Economic Performance, 2021, pp 49-94 from Springer

Abstract: Abstract Excess in one market motivates change in other markets since prices in each of the four markets (goods, credit, equity, and foreign exchange) are mutually dependent. The illustration of these excesses provides light on real-world events and the movement of market prices. Prices reflect forward-looking expectations. When actual events differ from those expectations, prices move. Often one expectation is that when markets are shocked, prices will return to prior values—positive static stability. Yet, that is seldom the case as commodity prices as well as other prices, drift, or migrate to new set of prices, neutral static stability, or crash—negative static stability. Public and private sector actions and, imbalances between markets, generate shocks. Intellectual biases, such as the confirmation bias, the framing of risk, and illusory correlation, often limit responses to those shocks. These biases influence the boom and bust of financial cycles.

Keywords: Mississippi bubble; John Law; Overshooting; Irrational exuberance; Structural breaks and corrections; Credit cycles; Static stability; positive; neutral; negative (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-76295-7_2

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DOI: 10.1007/978-3-030-76295-7_2

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