Journal Article

Bubbles, crises, and policy

F Allen and D Gale

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 15, issue 3, pages 9-18
Published in print September 1999 | ISSN: 0266-903X
Published online September 1999 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/15.3.9
Bubbles, crises, and policy

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  • Economic Development and Growth
  • Public Economics
  • Political Economy
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In many recent cases financial liberalization has led to a bubble in asset prices. The bursting of the bubble results in a banking crisis and recession. It is suggested such bubbles are caused by an interaction of the risk-shifting problem arising from agency relationships in intermediaries and uncertainty concerning the expansion of credit. Two important policy objectives are identified. The first is the prevention of bubbles in asset prices. The second is minimizing the impact of spillovers on to the real economy during post-bubble banking crises. The different policy approaches taken in Norway and Japan are compared.

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Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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