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.