Òscar Jordà, Moritz Schularick, Alan Taylor, 01 September 2015

The risk that asset price bubbles pose for financial stability is still not clear. Drawing on 140 years of data, this column argues that leverage is the critical determinant of crisis damage. When fuelled by credit booms, asset price bubbles are associated with high financial crisis risk; upon collapse, they coincide with weaker growth and slower recoveries. Highly leveraged housing bubbles are the worst case of all.

Fergal McCann, Tara McIndoe-Calder, 23 September 2014

The role of credit-fuelled property booms in the Global Crisis has received much high-profile attention in recent years. Using data on Irish small and medium enterprises, this column highlights an additional channel through which such booms can impact post-crisis growth. Firms having difficulty repaying their property-related debts divert resources away from hiring and investment. Property booms thereby induce misallocation of resources in both the boom and the bust.

Johanna Mollerstrom, 27 March 2010

Global imbalances are seen by some as contributing to the global crisis – but what caused the imbalances themselves? This column argues that the popular savings glut hypothesis appears to be at odds with the data. Instead a behavioural explanation based around asset-price bubbles is a much better match for the key facts.

Stephen Cecchetti, 01 December 2004

Written December 2004: Governments should use regulatory policies to address equity and property price bubbles, leaving interest rates to pursue more traditional policy goals. But until the efficacy of alternatives is proven, interest rates are the only tool and the right response to emerging equity or property price bubbles is to raise interest rates.

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