Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153782
Authors: 
Martin, Alberto
Ventura, Jaume
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1348
Abstract: 
We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the model can account for: (i) a gradual and protracted expansionary phase followed by a sudden and sharp recession; (ii) the connection (or lack of connection!) between financial and real economic activity and; (iii) a fast and strong transmission of shocks across countries. We also use the model to explore the role of fiscal policy.
Subjects: 
bubbles
credit constraints
financial accelerator
financial crisis
pyramid schemes
JEL: 
E32
E44
G01
O40
Document Type: 
Working Paper

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