Asset Price Instability and Policy Responses: The Legacy of Liberalization

Bell, Stephen and Quiggin, John (2006) Asset Price Instability and Policy Responses: The Legacy of Liberalization. Journal of Economic Issues, 40 3: 629-649.

Author Bell, Stephen
Quiggin, John
Title Asset Price Instability and Policy Responses: The Legacy of Liberalization
Journal name Journal of Economic Issues   Check publisher's open access policy
ISSN 0021-3624
Publication date 2006-09
Sub-type Article (original research)
Open Access Status Not Open Access
Volume 40
Issue 3
Start page 629
End page 649
Total pages 21
Editor Glen Atkinson
Place of publication Armonk, N.Y.
Publisher M. E.Sharpe for Association for Evolutionary Economics
Collection year 2006
Language eng
Subject C1
360100 Political Science
750699 Government and politics not elsewhere classified
Abstract The problem of asset price bubbles, and more generally of instability in the financial system, has been a matter of concern since the 1980s but has only recently moved to the center of the macroeconomic policy debate. The main concern with bubbles arises when they burst, imposing losses on investors holding the bubble assets and potentially on the financial institutions that have extended credit to them. Asset price volatility is an inevitable consequence of financial market liberalization and, in extreme cases, generates asset price bubbles, the bursting of which can impose substantial economic and social costs. Policy responses within the existing liberalized financial system face daunting levels of uncertainty and risk. Given the pattern of increasing asset market volatility over recent decades and the policy issues highlighted in this paper, the future looks uncertain. Another significant cycle of asset price movements, especially in one of the major economies, could see a fundamental revision of thinking about the costs and benefits of liberalized financial systems.
Keyword Economics
Trade liberalization
Price stabilization
Efficient markets
Q-Index Code C1

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Created: Wed, 15 Aug 2007, 06:32:34 EST