The International Transmission of Credit Bubbles: Theory and Policy

Recognition Program

Authors: Alberto Martin and Jaume Ventura

Journal of Monetary Economics, Vol. 76, No 1, 537-556, December, 2015

We live in a new world economy characterized by Financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic e§ects at home and are quickly propagated abroad. In previous work, we built on the theory of rational bubbles to develop a framework to think about the origins and domestic e§ects of these credit bubbles. This paper extends that framework to include many countries and general preferences, and uses it to study how Önancial integration a§ects the properties of credit bubbles, how the latter are transmitted across countries, and the role of international policy coordination.

This paper originally appeared as Barcelona School of Economics Working Paper 831
This paper is acknowledged by the Barcelona School of Economics Recognition Program