A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View

32 Pages Posted: 27 Nov 2009

See all articles by Andreas Hoffmann

Andreas Hoffmann

Leipzig University

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: November 2009

Abstract

The business cycles theories of Wicksell (1898), Schumpeter (1912), Mises (1912), Hayek (1929, 1935) and Minsky (1986, 1992) explain business cycles by distorted prices on capital markets, buoyant credit expansion and overinvestment. The exuberance during the boom endogenously causes the subsequent slump. While these theories put the emphasis on explaining the emergence of the cycle, this paper focuses on the macroeconomic policy responses during and after the crisis, when panic tightens credit supply. The paper allows an assessment of the long-term consequences of an asymmetric monetary and fiscal policy response to financial crisis.

JEL Classification: B53, E32, E44, E63

Suggested Citation

Hoffmann, Andreas and Schnabl, Gunther, A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View (November 2009). CESifo Working Paper Series No. 2855, Available at SSRN: https://ssrn.com/abstract=1513171

Andreas Hoffmann

Leipzig University ( email )

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

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

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/

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