The Impact of Regulation on the Emergence of the Bubble

46 Pages Posted: 10 Jan 2010

See all articles by Mojtaba Rouholamin

Mojtaba Rouholamin

affiliation not provided to SSRN

Louis Brennan

Trinity College - Trinity Business School - Institute for International Integration Studies (IIIS)

Date Written: January 6, 2010

Abstract

This paper considers the impact of regulation on the emergence of the bubble in economies. While the role in the recent crisis of the various actors - Banks, Governments, Regulators, Central banks and Rating agencies - and their failings are considered and some conclusions and recommendations drawn, it is argued that the behaviour of the system as a whole needs to be understood if bubbles are to be avoided. To this end, system dynamics modeling methodology is employed. Experimentation is carried out on three models of the economy. These models represent the economy in the absence of regulation, in the presence of regulation but in the absence of a reinforcing mindset and in the presence of regulation with a reinforcing mindset prevailing. It is demonstrated that the absence of regulation ensures the emergence of the bubble and that the presence of regulation together with a triggering mechanism to tighten monetary and fiscal policy can constrain the emergence of the bubble.

Keywords: Regulation, Bubbles, System Modeling

JEL Classification: G00

Suggested Citation

Rouholamin, Mojtaba and Brennan, Louis, The Impact of Regulation on the Emergence of the Bubble (January 6, 2010). Available at SSRN: https://ssrn.com/abstract=1533416 or http://dx.doi.org/10.2139/ssrn.1533416

Mojtaba Rouholamin

affiliation not provided to SSRN ( email )

Louis Brennan (Contact Author)

Trinity College - Trinity Business School - Institute for International Integration Studies (IIIS) ( email )

Trinity Business School
Trinity College
Dublin 2
Ireland

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