Leveraged Bubbles

36 Pages Posted: 22 Sep 2015  

Oscar Jorda

Federal Reserve Banks - Federal Reserve Bank of San Francisco; University of California, Davis

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Alan M. Taylor

University of California, Davis - Department of Economics; University of Virginia - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: August 22, 2015

Abstract

What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms, asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous phenomenon.

Keywords: boom, bust, bank lending, debt overhang, crises, local projections

JEL Classification: C140, C320, E440, E510, G010, N100, N200

Suggested Citation

Jorda, Oscar and Schularick, Moritz and Taylor, Alan M., Leveraged Bubbles (August 22, 2015). CESifo Working Paper Series No. 5489. Available at SSRN: https://ssrn.com/abstract=2663964

Oscar Jorda

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

University of California, Davis

One Shields Avenue
Davis, CA 95616
United States

Moritz Schularick (Contact Author)

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Alan M. Taylor

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
(434)-924-3177 (Phone)
(434)-982-2904 (Fax)

HOME PAGE: http://people.virginia.edu/~amt7u

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://cepr.org

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