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Bubbles, Banks, and Financial Stability

Kosuke Aoki and Kalin Nikolov ()

No 11-E-24, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

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.

Keywords: Rational bubbles; Financial Frictions; Financial Stability (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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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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