Crises of confidence turn booms into busts. Bloated household balance sheets and high debt offer the right ingredients for a confidence-driven housing bust. This column develops an analytic framework that accommodates the potential role of confidence fluctuations as a source of uncertainty in the economy. Current debt levels are shown to determine the exposure to crises of confidence. The results point to a clear role for macroprudential policy in the prevention of such crises.
Marco Terrones, Stijn Claessens, M. Ayhan Kose, 17 July 2011
The recent crisis has not only been a painful reminder of the importance of financial cycles, but it has also exposed our limited knowledge of them. This column explores two key questions on financial cycles: What are their main features and what happens when cycles in different financial markets coincide?
Most Read
Vox eBooks
Vox Talks
Events
-
3 - 4 May 2019 / London / Queen Mary, University of London
-
15 - 17 May 2019 / Florence, Italy / Florence School of Banking and Finance, European University Institute
-
16 - 17 May 2019 / University of Minho, Guimarães, Portugal / School of Engineering, University of Minho
-
20 - 20 May 2019 / Frankfurt am Main / SUERF - The European Money and Finance Forum Deutsche Bundesbank
-
20 - 22 May 2019 / Florence, Italy / Florence School of Banking and Finance, European University Institute
