Macro Seminars Amsterdam

Speaker(s)
Kalin Nikolov (European Central Bank)
Date
2011-02-11
Location
Amsterdam

We construct a model of rational bubbles under credit frictions and
show that bubbles held by banks can generate large credit expansions
followed by  … financial crisis. The size of boom-bust is somewhat larger
than the case in which savers directly hold bubbles. Thus massive credit
exansion during booms can be interpreted as an early warning indicator
of possible subsequent crisis.