Location of Repository

Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble?

By Lucjan T Orlowski

Abstract

This study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market; spillovers into broader credit market; the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns and Lehman Brothers with counterparty risk effects on other financial institutions; the commodity price bubble, and the ultimate demise of investment banking in the U.S. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings coupled with excessive credit creation, which lead to over-pricing of varied types of assets. The study calls such process a “wandering asset-price bubble”. Unstable allocations elevate market, credit and liquidity risks. Monetary policy responses aimed at stabilizing financial markets are proposed.

Topics: G12 - Asset Pricing; Trading volume; Bond Interest Rates, G15 - International Financial Markets, E44 - Financial Markets and the Macroeconomy, G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Year: 2008
DOI identifier: 10.2139/ssrn.1326649
OAI identifier: oai:mpra.ub.uni-muenchen.de:12696

Suggested articles

Preview


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.