Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/45881
Authors: 
Reicher, Christopher Phillip
Year of Publication: 
2011
Series/Report no.: 
Kiel Working Paper 1679
Abstract: 
This paper proposes and tests a theory of credit-driven asset bubbles which are neutral in their real effects. When a lender such as a government, central bank, or banking sector is willing to lend infinitely against collateral, explosive asset bubbles can form which exactly offset a bubble in household liabilities. Surprisingly, evidence from a VAR using long-run restrictions supports the idea that asset bubbles are approximately neutral in their real effects before 2007. The evidence becomes more ambiguous if one includes post-2007 data, hinting that the post-2007 degree of comovement between asset prices and output comes from an unusual regime.
Subjects: 
Bubbles
fiscal theory of the price level
collateral constraints
neutrality
transversality conditions
JEL: 
G12
E44
E51
Document Type: 
Working Paper

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