Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View

32 Pages Posted: 3 Oct 2007  

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Andreas Hoffmann

Leipzig University

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

Credit booms have globally fuelled hikes in stock, raw material and real estate markets which have culminated in the recent US subprime market crisis. We explain the global asset market booms since the mid 1980s based on the overinvestment theories of Hayek, Wicksell and Schumpeter. We argue that ample liquidity supply originating in the large industrialized countries has contributed to overinvestment cycles in Japan, East Asia, the new markets in the industrial countries and many emerging market economies. Expansionary monetary policies in response to the burst of bubbles are argued to have contributed to vagabonding bubbles around the globe.

Keywords: bubbles, boom-bust cycles, Hayek, Wicksell, Schumpeter, emerging markets, capital flows, overinvestment theories

JEL Classification: B53, E32, E44, E52

Suggested Citation

Schnabl, Gunther and Hoffmann, Andreas, Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View (September 2007). CESifo Working Paper Series No. 2100. Available at SSRN: https://ssrn.com/abstract=1018342

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

Andreas Hoffmann

Leipzig University ( email )

Institute for Economic Policy
Grimmaische Str. 12
Leipzig, 04109
Germany

HOME PAGE: http://www.a-hoffmann.info

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