Spott ing Bubbles: A Two-Pillar Framework for Policy Makers
Journal Title: Journal of Banking and Financial Economics - Year 2016, Vol 2, Issue 6
Abstract
In the aftermath of the global fi nancial crisis, the issue of how best to identify speculative bubbles remains in fl ux. This owes to the diffi culty of disentangling irrational investor exuberance from the rational response to lower risk, based on price behavior alone. In response, I introduce a twopillar (price and quantity) approach for fi nancial market surveillance. While asset pricing models comprise a valuable component of the surveillance toolkit, risk taking behavior, and fi nancial vulnerabilities more generally, can also be refl ected in subtler, non-price terms. Though policy makers will always encounter uncertainty when attempting to measure imbalances in fi nancial markets, ‘perfect should not be the enemy of the good.’ In this spirit, the framework in this paper seems to capture some of the stylized facts of asset booms and busts, and thus could offer policy makers a practical guide as to when to consider leaning against the wind.
Authors and Affiliations
Bradley A. Jones
Keywords
Related Articles
- EP ID EP349026
- DOI 10.7172/2353-6845.jbfe.2016.2.5
- Views 76
- Downloads 0
Financial Deepening, Property Rights, and Poverty: Evidence from Sub-Saharan Africa
Recent studies on the relationship between financial development and poverty have been inconclusive. Some claim that, by allowing more entrepreneurs to obtain financing, financial development improves the allocation of c...
Macroprudential Banking Regulation: Does One Size Fit All?
The macroprudential regulatory framework of Basel III imposes the same minimum capital and liquidity requirements on all banks around the world to ensure global competitiveness of banks. Using an agent-based model of the...
Global Thermoeconomics
This paper illustrates that basic global economic concepts can be directly related to the First and Second Laws of Thermodynamics. We believe that all economic returns are from nothing except from current and past human...
Volatility Transmission between Stock and Foreign Exchange Markets: Evidence from Nigeria
The direction of volatility transmission between stock and foreign exchange markets is important for hedging strategy, portfolio management and fi nancial market regulation. This paper examines volatility transmission be...
Gravity Chains: Estimating bilateral trade flows when parts and components trade is important
Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingl...