Series: IMF Working Papers
Author(s): Nina Biljanovska , Lucyna Gornicka , and Alexandros Vardoulakis
Publisher: INTERNATIONAL MONETARY FUND
Publication Date: 30 August 2019
Keywords: Economic conditions, Financial crises, Demand, Economic stabilization, Price indexes, Collateral constraints, rational bubbles, macroprudential regulation, optimal policy, WP
An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytic...