Domestic Contagion: Twin Peaks?

Robert Z. Aliber, Charles P. Kindleberger and Robert McCauley
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Robert Z. Aliber: University of Chicago
Charles P. Kindleberger: Massachusetts Institute of Technology

Chapter Chapter 7 in Manias, Panics, and Crashes, 2023, pp 173-186 from Springer

Abstract: Abstract Within an economy, euphoria often spreads from one market to another. Property and stock markets stimulate each other in various ways. Higher wealth in one stimulates spending and faster growth, which raises the price of the other. Investors respond to a rise in the price of one by diversifying into the other. Higher property prices increase the value of the collateral that banks hold against loans, and banks increase the supply of credit. In 1980s Japan, banks held lots of shares, so the stock boom directly boosted the supply of bank credit, inflating the bubble spectacularly. Stock market and property may show ‘twin peaks’ on the way up, but on the way down stocks tend to fall faster than property. Speculators in real estate tend to borrow on extended terms and can hang on in hope.

Date: 2023
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DOI: 10.1007/978-3-031-16008-0_7

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