Bubbles, Banks and Financial Stability

52 Pages Posted: 22 Nov 2012

See all articles by Kosuke Aoki

Kosuke Aoki

University of Tokyo

Kalin Nikolov

European Central Bank (ECB)

Date Written: November 15, 2012

Abstract

We build a model of rational bubbles in a limited commitment economy and show that the impact of the bubble on the real economy crucially depends on who holds the bubble. When banks are the bubble-holders, this amplifies the output boom while the bubble survives but also deepens the recession when the bubble bursts. In contrast, the real impact of bubbles held by ordinary savers is more muted.

Keywords: financial stability

Suggested Citation

Aoki, Kosuke and Nikolov, Kalin, Bubbles, Banks and Financial Stability (November 15, 2012). ECB Working Paper No. 1495, Available at SSRN: https://ssrn.com/abstract=2176147

Kosuke Aoki (Contact Author)

University of Tokyo ( email )

Hongo 7-3-1
Bunkyo-ku
Tokyo, Tokyo 113-0033
Japan

Kalin Nikolov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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