Financial Market Globalization and Asset Price Bubbles
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Authors
Yago, N.
Publication Date
2021-09-23Series
Cambridge Working Papers in Economics
Publisher
Faculty of Economics, University of Cambridge
Type
Working Paper
Metadata
Show full item recordCitation
Yago, N. (2021). Financial Market Globalization and Asset Price Bubbles. https://doi.org/10.17863/CAM.79380
Abstract
We construct a two-country model of rational bubbles with asymmetric degrees of financial development. We show that whether financial globalization gives rise to bubbles crucially depends on the levels of financial development in the two countries. In economies with either developed or underdeveloped financial market relative to the foreign one, bubbles cannot arise under financial autarky but they can arise under financial globalization. Moreover, unlike previous literature, bubbles in sufficiently well-developed financial markets lead to welfare losses in other countries.
Keywords
Financial globalization, Asset bubbles, Credit friction
Identifiers
CWPE2167
This record's DOI: https://doi.org/10.17863/CAM.79380
This record's URL: https://www.repository.cam.ac.uk/handle/1810/331931
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