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Bubbles, Banks, and Financial Stability

Kosuke Aoki and Kalin Nikolov ()

No CARF-F-253, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2) When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by ordinary savers have relatively muted effects. Banks tend to invest in bubbles when financial liberalisation decreases their profitability.

Pages: 57 pages
Date: 2011-08
New Economics Papers: this item is included in nep-ban and nep-cba
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https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/263.pdf (application/pdf)

Related works:
Journal Article: Bubbles, banks and financial stability (2015) Downloads
Journal Article: Bubbles, banks and financial stability (2012) Downloads
Working Paper: Bubbles, banks and financial stability (2012) Downloads
Working Paper: Bubbles, banks and financial stability (2012) Downloads
Working Paper: Bubbles, Banks, and Financial Stability (2011) Downloads
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