Asset bubbles, financial crisis and countercyclical policies
DOI:
https://doi.org/10.62343/cjss.2021.195Keywords:
Asset Bubbles; Asset Pricing; Money Supply, Credit, Money; Monetary Policy; Central Banks and Their Policies; Government Policy and Regulation; Financial Institutions and Services; Economic History of Financial Crisis.Abstract
In this manuscript, we examine the causes of asset price bubbles and financial crises as well as the current challenges facing the regulatory framework of the financial system. We argue that the current model of regulations cannot stop the inevitability of either asset bubbles or financial crises in the future. In a causal relationship, the current system of regulations tends to deal with
the effects of liquidity shortage during recessions rather than with the causes, which can be referred to as distorted financial intermediation. In fact, regulations seek to cure symptoms rather than disease. The rules function like antibiotics,
against which infection may develop immunity. We propose a modification of the current regulatory system and believe that this model should be taken into account when developing an effective regulatory framework for the financial system.
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