Discussion Paper Details

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Title: Asset Price Bubbles and Systemic Risk

Author(s): Markus K Brunnermeier, Simon Rother and Isabel Schnabel

Publication Date: October 2017

Keyword(s): Asset price bubbles, CoVaR, Credit Booms, Financial crises and systemic risk

Programme Area(s): Financial Economics and International Macroeconomics and Finance

Abstract: This paper empirically analyzes the effects of asset price bubbles on systemic risk. Based on a broad sample of banks from 17 OECD countries between 1987 and 2015, we show that asset price bubbles in stock and real estate markets raise systemic risk at the bank level. The strength of the effect depends strongly on bank characteristics (bank size, loan growth, leverage, and maturity mismatch) as well as bubble characteristics (length and size). These findings suggest that the adverse effects of bubbles can be mitigated substantially by strengthening the resilience of financial institutions.

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Bibliographic Reference

Brunnermeier, M, Rother, S and Schnabel, I. 2017. 'Asset Price Bubbles and Systemic Risk'. London, Centre for Economic Policy Research.