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Oxf Rev Econ Policy 1999; 15:9-18
© 1999 Oxford University Press and Oxford Review of Economic Policy Ltd

Article

Bubbles, crises, and policy

F Allen0
D Gale1
0 Wharton School, University of Pennsylvania, USA
1 New York University, NY, USA

Abstract

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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G. L. Kaminsky and S. L. Schmukler
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[Abstract] [Full Text] [PDF]


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