Leveraged borrowing and boom-bust cycles
Patrick Pintus and
Yi Wen
No 2010-027, Working Papers from Federal Reserve Bank of St. Louis
Abstract:
Investment booms and asset \"bubbles\" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between leveraged borrowing and persistent asset demand can generate a multiplier-accelerator mechanism that transforms a one-time technological innovation into large and long-lasting boom-bust cycles. The predictions are consistent with the basic features of investment booms and the consequent asset-market crashes led by excessive credit expansion.
Keywords: Asset pricing; Credit (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-bec, nep-dge and nep-mac
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Journal Article: Leveraged Borrowing and Boom-Bust Cycles (2013) 
Working Paper: Leveraged Borrowing and Boom-Bust Cycles (2013)
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DOI: 10.20955/wp.2010.027
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