Geldpolitik, Vagabundierende Liquidität Und Platzende Blasen in Neuen Und Aufstrebenden Märkten (Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets)

Wirtschaftsdienst, April 2007

10 Pages Posted: 27 Apr 2007 Last revised: 18 May 2013

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Andreas Hoffmann

Leipzig University

Abstract

We show how since the mid 1980s expansionary monetary policies in the large economies and vagabonding liquidity have contributed to bubbles in the new and emerging markets. Based on the monetary overinvestment theories of Hayek and Wicksell we describe a wave of bubbles and crises that was initiated in Japan by an expansionary monetary policy in the mid 1980s. After the burst of the Japanese bubble and sharply declining interest rates in Japan, carry trade transmitted the bubbles to East Asia (Asian crisis) and the new markets in the developed economies. After the end of the irrational exuberance in the new markets, new bubbles emerged in the US real estate market and possibly currently in China and Central and Eastern Europe. Because particularly Japan and the US have tended to lower interest rates in response to financial crisis, the low interest rate policies in the large countries and thereby speculative exaggerations may continue. According to Wicksell and Hayek a higher level of interest rates in the large countries would reveal the structural distortions that have come along with the ample liquidity supply.

Note: Downloadable document is in German.

Keywords: Bubbles, Boom-and-Bust Cycles, Monetary Policy, Emerging Markets, Hayek, Wicksell

JEL Classification: B53, E32, E44, E52

Suggested Citation

Schnabl, Gunther and Hoffmann, Andreas, Geldpolitik, Vagabundierende Liquidität Und Platzende Blasen in Neuen Und Aufstrebenden Märkten (Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets). Wirtschaftsdienst, April 2007. Available at SSRN: https://ssrn.com/abstract=982344

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/

Andreas Hoffmann

Leipzig University ( email )

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

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

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