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Modelling Financial Instability

Published online by Cambridge University Press:  26 March 2020

Franklin Allen
Franklin Allen*
Affiliation:
Wharton School, University of Pennsylvania
*
e-mail: allenf@wharton.upenn.edu
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Abstract

Financial instability can have large adverse effects on an economy. One major cause of instability is asset price bubbles. This paper starts by considering how such bubbles can arise due to the expansion of money and credit. The ways in which subsequent financial instability occurs are then discussed. Banking crises can arise due to panics or as a result of the business cycle. Contagion and financial fragility can cause small disturbances to have large effects. Finally, policy issues are touched upon.

Keywords

BubblescrisescontagionfragilityG12G21G28
Type
Articles
Information
National Institute Economic Review , Volume 192 , April 2005 , pp. 57 - 67
Copyright
Copyright © 2005 National Institute of Economic and Social Research

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