Speculative Bubbles and Financial Crises

2012 ◽  
Vol 4 (3) ◽  
pp. 184-221 ◽  
Author(s):  
Pengfei Wang ◽  
Yi Wen
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Asset Prices ◽  
Asset Price ◽  
Real Economy ◽  
Positive Probability ◽  
The Real ◽  
Speculative Bubbles ◽  
Financial Bubbles ◽  
Intrinsic Values

Are asset prices unduly volatile and often detached from their fundamentals? Does the bursting of financial bubbles depress the real economy? This paper addresses these issues by constructing a DSGE model with speculative bubbles. We characterize conditions under which storable goods, regardless of their intrinsic values, can carry bubbles, and agents are willing to invest in such bubbles despite their positive probability of bursting. The results show that systemic risk, commonly perceived changes in the bubble's probability of bursting, can generate boom-bust cycles with hump-shaped output dynamics and produce asset price movements many times more volatile than the economy's fundamentals. (JEL E13, E23, E32, E44, G01, G12).

scholarly journals Heterogeneous traders, price-volume signals, and complex asset price dynamics

2005 ◽  
Vol 2005 (1) ◽  
pp. 19-29 ◽  
Author(s):  
Frank H. Westerhoff
Keyword(s):  
Asset Pricing ◽  
Asset Prices ◽  
Trading Volume ◽  
Deterministic Model ◽  
Asset Price ◽  
Pricing Model ◽  
Price Trend ◽  
Asset Pricing Model ◽  
Intrinsic Values ◽  
Current Price

We seek to develop a novel asset pricing model with heterogeneous traders. Fundamental traders expect that asset prices converge towards their intrinsic values, whereas chart traders rely on both price and volume signals to determine their orders. To be precise, the larger the trading volume, the more they believe in the persistence of the current price trend. Simulations of our nonlinear deterministic model reveal that interactions between fundamentalists and chartists may cause intricate endogenous price fluctuations. Contrary to the intuition, we find that chart trading may increase market stability.

scholarly journals Review of the Bank of Russia – NES Workshop ‘Main Challenges in Banking: Risks, Liquidity, Pricing, and Digital Currencies’

2021 ◽  
Vol 80 (4) ◽  
pp. 124-136
Author(s):  
Ivan Khotulev ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Systemic Risk ◽  
Credit Spreads ◽  
Information Flows ◽  
Real Economy ◽  
The Real ◽  
Market Participants ◽  
Central Bankers ◽  
Liquidity Pricing

In October 2021, the Bank of Russia and the New Economic School (NES) hosted a joint international online workshop titled ‘Main Challenges in Banking: Risks, Liquidity, Pricing, and Digital Currencies’. Five papers were presented. They addressed various issues in banking which are currently of paramount importance to central bankers, market participants, and academics: the connections between systemic risk and the real economy, the digitalisation of finance and information asymmetries, credit spreads and monetary policy, the improvement of information flows and outcomes in credit markets, the introduction of central bank digital currencies, and bank intermediation.

scholarly journals Identifying Systemically Important Companies by Using the Credit Network of an Entire Nation

Entropy ◽  
2018 ◽  
Vol 20 (10) ◽  
pp. 792 ◽  
Author(s):  
Sebastian Poledna ◽  
Abraham Hinteregger ◽  
Stefan Thurner
Keyword(s):  
Financial Institutions ◽  
Systemic Risk ◽  
Banking System ◽  
Real Economy ◽  
The Real ◽  
Using Data ◽  
Credit Network ◽  
First Time ◽  
Entire Economy ◽  
Financial Liability

The notions of systemic importance and systemic risk of financial institutions are closely related to the topology of financial liability networks. In this work, we reconstruct and analyze the financial liability network of an entire economy using data of 50,159 firms and banks. Our analysis contains 80.2% of the total liabilities of firms towards banks and all interbank liabilities in the Austrian banking system. The combination of firm-bank networks and interbank networks allows us to extend the concept of systemic risk to the real economy. In particular, the systemic importance of individual companies can be assessed, and for the first time, the financial ties between the financial and the real economy become explicitly visible. We find that firms contribute to systemic risk in similar ways as banks do. We identify a set of mid-sized companies that carry substantial systemic risk. Their default would affect up to 40% of the Austrian financial market. We find that all firms together create more systemic risk than the entire financial sector. In 2008, the total systemic risk of the Austrian interbank network amounted to only 29% of the total systemic risk of the entire financial network consisting of firms and banks. The work demonstrates that the notions of systemically important financial institutions (SIFIs) can be directly extended to firms.

scholarly journals An anatomy of financial crises in Norway, 1830–2010

2014 ◽  
Vol 21 (1) ◽  
pp. 25-57 ◽  
Author(s):  
Ola Honningdal Grytten ◽  
Arngrim Hunnes
Keyword(s):  
Financial Crises ◽  
Spillover Effects ◽  
Financial Instability ◽  
Real Economy ◽  
Credit Expansion ◽  
The Real

On the basis of a novel dataset, the article investigates the anatomy of financial crises in Norway from 1830 to 2010. First, nine significant crises are identified. Second, the article examines spillover effects on the real economy. We find a clear but not symmetric relationship. Third, the article investigates key patterns in credit and money volumes. Major financial crises typically occurred after substantial money and credit expansion, causing financial instability.

Sign in / Sign up

Export Citation Format

Share Document