DP10781 Leveraged Bubbles

Author(s):	Òscar Jordà, Moritz Schularick, Alan M. Taylor
Publication Date:	August 2015
Keyword(s):	bank lending, boom, bust, crises, debt overhang, local projections
JEL(s):	C14, C32, E44, E51, G01, N10, N20
Programme Areas:	Financial Economics, Economic History, Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10781

What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms, asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous phenomenon.