Theoretical notes on bubbles and the current crisis

Alberto Martin and Jaume Ventura

No 1348, Working Paper Series from European Central Bank

Abstract: We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the model can account for: (i) a gradual and protracted expansionary phase followed by a sudden and sharp recession; (ii) the connection (or lack of connection!) between financial and real economic activity and; (iii) a fast and strong transmission of shocks across countries. We also use the model to explore the role of fiscal policy. JEL Classification: E32, E44, G01, O40

Keywords: bubbles; credit constraints; financial accelerator; financial crisis; pyramid schemes (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cba and nep-opm
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Citations: View citations in EconPapers (55)

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Related works:
Working Paper: Theoretical Notes on Bubbles and the Current Crisis (2015)
Journal Article: Theoretical Notes on Bubbles and the Current Crisis (2011)
Working Paper: Theoretical notes on bubbles and the current crisis (2011)
Working Paper: Theoretical Notes on Bubbles and the Current Crisis (2010)
Working Paper: Theoretical Notes on Bubbles and the Current Crisis (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111348

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