Theoretical notes on bubbles and the current crisis

Alberto Martin and Jaume Ventura ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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.

Keywords: bubbles; dynamic inefficiency; financial accelerator; credit constraints; financial crisis; pyramid schemes. (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 O40 (search for similar items in EconPapers)
Date: 2010-05, Revised 2011-02
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (56)

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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:upf:upfgen:1222

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