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Modelling Financial Instability

Published online by Cambridge University Press:  26 March 2020

Franklin Allen*
Affiliation:
Wharton School, University of Pennsylvania

Abstract

Financial instability can have large adverse effects on an economy. One major cause of instability is asset price bubbles. This paper starts by considering how such bubbles can arise due to the expansion of money and credit. The ways in which subsequent financial instability occurs are then discussed. Banking crises can arise due to panics or as a result of the business cycle. Contagion and financial fragility can cause small disturbances to have large effects. Finally, policy issues are touched upon.

Type
Articles
Copyright
Copyright © 2005 National Institute of Economic and Social Research

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