The International Transmission of Credit Bubbles: Theory and Policy / Jaume Ventura, Alberto Martin.

Format:

Book

Author/Creator:

Ventura, Jaume.

Contributor:

National Bureau of Economic Research.

Martin, Alberto.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20933.

NBER working paper series no. w20933

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

International Transmission of Credit Bubbles

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We live in a new world economy characterized by financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic effects at home and are quickly propagated abroad. In previous work, we built on the theory of rational bubbles to develop a framework to think about the origins and domestic effects of these credit bubbles. This paper extends that framework to two-country setting and studies the channels through which credit bubbles are transmitted across countries. We find that there are two main channels that work through the interest rate and the terms of trade. The former constitutes a negative spillover, while the latter constitutes a negative spillover in the short run but a positive one in the long run. We study both cooperative and noncooperative policies in this world. The interest-rate and terms-of-trade spillovers produce policy externalities that make the noncooperative outcome suboptimal.

Notes:

Print version record

February 2015.