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Paper eres2009_332:
Haven't Learned from the Past? A Common Sympton of Asset Bubble Implosions

id eres2009_332
authors Yiu, Chung Yim; Xu, Yishuang; Cao, Coune
year 2009
title Haven't Learned from the Past? A Common Sympton of Asset Bubble Implosions
source 16th Annual European Real Estate Society Conference in Stockholm, Sweden
summary By reviewing the previous three asset bubble implosions, viz. (1) the “Lost Decade” of Japan in the 1980s; (2) the Asian Financial Crisis in Hong Kong in 1997; and (3) the Financial Tsunami in the USA in 2008, a common symptom of negative real interest rate is very clearly revealed before the implosion of the three bubbles, although the bubbles might have been caused by very different reasons. Credit expansion due to negative interest rate has long been recognized since Irving Fisher’s The Theory of Interest, yet in the study of the three asset bubbles, the central governments or the Federal Reserve of the US had to cut substantially the short-term interest rate for various reasons, even in a situation of extremely high inflation rate. The asset pricing bubbles are bound to be burst in the light of the resulting negative interest rate. This paper reviews the formation and the implosion of the three asset bubbles, with a focus on the temporal change of their real interest rates. It also studies the reasons why the central governments had to cut the interest rate, even when the inflation rate was high. It aims to argue that, asset bubble implosion may not be prevented nor accurately predicted though, there is a clear symptom in the markets. It also contends that, unfortunately, even if the symptom can be known, next asset bubbles would still be formed and imploded."
keywords Asset Bubble, Real Interest Rate, Credit Expansion
series ERES:conference
content file.ppt (5,018,112 bytes)
discussion No discussions. Post discussion ...
session Cycles and Crises
last changed 2009/09/16 16:22
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