Credit Growth, Rational Bubbles and Economic Efficiency

18 Pages Posted: 24 Apr 2018

See all articles by Xavier Freixas

Xavier Freixas

Universitat Pompeu Fabra; Centre for Economic Policy Research (CEPR); Barcelona Graduate School of Economics (Barcelona GSE)

Date Written: February 2018

Abstract

Excessive credit growth and the emergence of bubbles increase the likelihood of a systemic crisis. While no causality between credit growth and systemic crises has been empirically established, it seems reasonable to think that excessive credit growth goes hand in hand with the emergence of bubbles and that it is their bursting that triggers a systemic crisis. This article explores the interaction between the demand for bubbly assets and the supply of credit in a dynamic overlapping generations economy and examines the macroprudential policy implications.

Keywords: Bubbles, Credit Supply, Systemic Risk, Banks, Macroprudential regulation

Suggested Citation

Freixas, Xavier, Credit Growth, Rational Bubbles and Economic Efficiency (February 2018). Comparative Economic Studies, Vol. 60, Issue 1, 2018. Available at SSRN: https://ssrn.com/abstract=3162051 or http://dx.doi.org/10.1057/s41294-018-0054-8

Xavier Freixas (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 2726 (Phone)
+34 93 542 1746 (Fax)

HOME PAGE: http://www.econ.upf.es/~freixas

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://www.econ.upf.es/~freixas/more/personal1.htm

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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