ECB paper highlights locational importance of asset bubbles

ecb-frankfurt

The bursting of an asset bubble has strongly differing effects on the economy, depending on the degree to which banks are exposed to it, according to a working paper published by the European Central Bank on November 16.

Authors Kosuke Aoki and Kalin Nikolov use a model of the economy based on three agents – bankers, entrepreneurs and workers – to test the effect of asset bubbles on different sectors. The paper finds that when banks are heavily exposed to a bubble, the shock is transmitted

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