DP12362 Asset Price Bubbles and Systemic Risk
|Author(s):||Markus K Brunnermeier, Simon Rother, Isabel Schnabel|
|Publication Date:||October 2017|
|Keyword(s):||Asset price bubbles, CoVaR, Credit Booms, Financial crises, systemic risk|
|JEL(s):||E32, G01, G12, G20, G32|
|Programme Areas:||Financial Economics, International Macroeconomics and Finance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=12362|
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.