| Author: | Allen, F. Gale, D. |
| Title: | Bubbles and crises |
| Journal: | Economic Journal
2000 : JAN, VOL. 110:460, p. 236-255 |
| Index terms: | BUBBLES CRISES ECONOMICS |
| Language: | eng |
| Abstract: | In recent financial crises a bubble, in which asset prices rise, is followed by a collapse and widespread default. Bubbles are caused by agency relationships in the banking sector. Investors use money borrowed from banks to invest in risky assets, which are relatively attractive because investors can avoid losses in low payoff states by defaulting on the loan. This risk shifting leads investors to bid up the asset prices. Risk can originate in both the real and financial sectors. |
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