Price Bubbles Research Articles

Exploring the Implementation of Quantitative Easing (QE) as an Expansionary Monetary Policy Across Nations and Regions: Implications for the Global Economy

Quantitative easing (QE) represents an unconventional, yet potent monetary policy lever employed by central banks. Through the strategic acquisition of government bonds and diverse financial assets, these banks effectively pump liquidity into the economic system. The objective is twofold: to deliberately drive down interest rates, thereby reducing the cost of borrowing and encouraging investment, and ultimately to stimulate economic growth and revitalize economic activity. This approach, though unconventional, has proven to be a vital tool in the central banks' arsenal for addressing economic downturns and fostering economic recovery. This paper explores the global ramifications of QE by analyzing its implementation in various countries and regions, with a focus on the resulting economic outcomes and the interconnected impacts on the global economy. Through a series of case studies, the research delves into how QE influences international capital flows, exchange rate volatility, global trade patterns, and the dynamics of financial markets. Additionally, the paper provides a critical evaluation of QE's effectiveness in achieving its intended economic objectives, while also highlighting potential risks such as asset bubbles, inflationary pressures, and increased debt levels. By examining both short-term benefits and long-term implications, this study offers insights into optimizing the deployment of QE policies to enhance their effectiveness and mitigate adverse effects. The research underscores the necessity for careful consideration and management of QE's broader economic impacts, ensuring that such policies support sustainable global economic stability.

A Stochastic Tree for Bubble Asset Modelling and Pricing

A Stochastic Tree for Bubble Asset Modelling and Pricing

Detecting bubbles in world aluminum prices: Evidence from GSADF test

The aim of this research is to assess the existence of multiple bubbles in the global aluminum market by employing the Generalized Supremum Augmented Dickey-Fuller (GSADF) methodology. This method offers practical time series analysis tools for identifying periods of rapid price escalation, followed by subsequent collapses. Findings indicate the identification of six explosive bubbles occurring between January 1980 and March 2023, during which the aluminum price strayed from its underlying fundamental value. Additionally, this finding is consistent with the asset pricing model, which generally considers both fundamental and bubble components. Based on the empirical results, the aluminum price bubbles are positively influenced by the copper price, GDP, the U. S dollar index, industrialization of China, China’s urbanization rate, whereas the global aluminum production, oil price, and base metal price index have a negative explanatory effect on the aluminum price bubbles. To effectively stabilize the international aluminum price, policymakers are suggested to be vigilant in identifying bubble episodes and monitoring their progression. Additionally, regulatory authorities should implement measures to curb excessive speculative activity during periods of extreme market volatility, thereby mitigating excessive price fluctuations and the formation of aluminum bubbles.

Towards Green Development: Exploring the Impact of Housing Price Bubbles on Regional Green Innovation Efficiency Based on Chinese Provincial Panel Data Analysis

Innovation is an eternal theme of human development, and green innovation efficiency serves as the basis for achieving innovation-driven development in a country or region, as well as an important aspect of ecological civilization construction. In this context, based on the panel data of 30 Chinese provinces during 2003–2020, this study explores the effect of housing price bubbles on green innovation efficiency by using a global SBM-DEA model with unexpected outputs and a two-way fixed effects model. The results show that housing price bubbles considerably reduced green innovation efficiency, which is also verified by a series of robustness and endogeneity tests. Heterogeneity tests show that housing price bubbles in eastern and high human capital regions have a significantly higher inhibitory effect on green innovation efficiency than that in the central and western regions and low human capital regions. The mechanism test shows that housing price bubbles have reduced green innovation efficiency by intensifying the mismatch of labor and capital between regions. Moreover, high housing prices will further deepen the negative impact of housing price bubbles on green innovation efficiency, while expanding economic openness will help alleviate the negative impact. Therefore, to effectively enhance regional green innovation efficiency, we put forward a series of policy measures in terms of strengthening the adjustment of housing policies, optimizing the resource allocation structure, and implementing differentiated environmental control tools.

Fertilizer price bubbles and contributing factors: evidence from the Chinese urea fertilizer market

ABSTRACT Recent fertilizer price booms have raised concerns about whether prices reflect market fundamentals. This study examines urea fertilizer price explosiveness (‘bubbles’) in China, a major global producer and exporter, from 2016 to 2023. We identified six episodes of explosiveness, with five occurring during the 2021–2022 boom. Regression analysis reveals that rising coal and corn prices significantly increase the likelihood of price bubbles, while China’s export restrictions significantly reduce it. Additionally, bubble likelihood ratios were lower during the Black Sea Initiative but increased following the implementation of agricultural subsidies. However, the magnitudes of these changes were not economically meaningful.

Is that JPEG worth 70 million dollars? Value creation and perceptions of nonfungible tokens in a bubble economy

ABSTRACT Non-fungible tokens (NFTs) have sparked questions about value. In our attempt to shed light on the value of NFTs, especially during their dramatic rise in the early 2020s, we develop a theoretical analysis of the extrinsic factors shaping NFT value based on a perfect storm of individual, social, marketing, and environmental factors. After detailing the effects of each of these factors in shaping NFT valuation, we develop a new understanding of value in a frenzy of celebrity influence, social media, decentralized authority, unregulated markets, marketing hype, and media magnification. We also articulate the intrinsic factors that still affect value as well. We argue that in the NFT bubble economy and its aftermath, extrinsic, social, and situational factors came to dominate valuation. We offer advice on how to make sense of value in the post NFT bubble and outline a research agenda that considers the role of cryptocurrency and metaverse.

Testing for Asset Price Bubbles using Options Data*

We present a new approach to identifying asset price bubbles based on options data. We estimate asset bubbles by exploiting the differential pricing between put and call options. We apply our methodology to two stock market indexes, the S&P 500 and the Nasdaq-100, and two technology stocks, Amazon and Facebook, over the 2014-2018 sample period. We find that, while indexes do not exhibit significant bubbles, Amazon and Facebook show frequent and significant bubbles. The estimated bubbles tend to be associated with large volatility and large trading volume. Since our approach can be implemented in real time, it is useful to both policy-makers and investors.

The Potential Relationship Between the Fed's Rate Cut and the Global Economy

The recent decision by the Federal Reserve Board to cut interest rates has been hotly debated due to growing uncertainty about the US economy. The article provides an in-depth analysis of the potential risks facing the US economy and discusses the need for the rate cut. Based on this, the project will delve into the combined effects of the Federal Reserve's interest rate cut on the US economy, and discuss the positive role it will play in reducing inflation. Finally, the paper also argues that the Fed's interest rate cut is likely to trigger risks in global financial markets and will slow the recovery of the world economy. Considering the limited impact of the U.S. rate cut on the Chinese economy, it is still needed to continue to pay attention to possible asset price bubbles while remaining vigilant.

Quantile analysis for financial bubble detection and surveillance

Understanding and monitoring financial bubbles is critical, as they can lead to market instability, asset price crashes, and economic downturns with widespread consequences. This article explores the usefulness of quantile regression (QR) technique in detecting and surveilling financial bubbles, encompassing both global testing and real‐time monitoring. We demonstrate that the QR‐based quantile unit root test, coupled with an optimal quantile selection technique, serves as an effective tool for a global bubble test without necessitating additional recursive techniques. Moreover, we propose two QR‐based bubble monitoring techniques. We show that the monitoring statistics follow a random variate under the null hypothesis of no bubbles but diverge to positive infinity in the presence of a mildly explosive bubble, and hence consistently date the origination of a bubble. Monte Carlo simulations suggest that compared with their LS counterparts, in the presence of skewed distributions, the QR‐based global test delivers substantially greater power, while the QR‐based monitoring procedures offer higher bubble detection rate and more accurate dating of the bubble origination. As an illustration, we conduct a pseudo real‐time monitoring exercise with the S&P 500 composite index.

Asset bubbles and financial frictions in small open economies☆

Financial cycles involving asset bubbles frequently coincide with the cyclical expansion and contraction of credit conditions. The collapse of asset and credit bubbles frequently precedes financial crises and economic recessions. We develop a small open economy DSGE model that incorporates asset bubbles and banking frictions. Credit-constrained firms trade in intrinsically useless bubble assets. Financial intermediaries, constrained by their balance sheets, introduce banking friction into financial markets. The static analysis suggests that increases in foreign interest rates unfavorably impact the formation of domestic bubbles. Dynamic analysis indicates that asset bubbles amplify macroeconomic fluctuations, with banking leverage constraints intensifying this effect. Therefore, asset bubbles amplify and propagate economic fluctuations. Unconventional monetary policy, macroprudential policy, and bubbly bailout policy could mitigate the amplification effects of banking leverage constraints and asset bubble bursts on macroeconomic fluctuations, which are mediated through reducing risk premiums, curbing capital outflows, and sustaining asset bubble channels, respectively. Finally, combining unconventional monetary policies with bubbly bailout policies and macroprudential policies yields superior outcomes.

The Effects of FOMO on Investment Behavior in the Stock Market

This study explores the impact of Fear of Missing Out (FOMO) on stock market investment behavior, focusing on how psychological and emotional factors influence investors' decision-making processes. The primary objective of the research is to investigate the relationship between FOMO and key behavioral trends, such as overtrading, speculative investing, and the formation of asset bubbles. A qualitative research approach was employed, utilizing a literature review of existing studies on behavioral finance, FOMO, and stock market dynamics. The findings indicate that FOMO significantly affects investors by amplifying emotional reactions to market trends, leading to irrational decisions that prioritize short-term gains over long-term financial stability. Social media and technology play a critical role in amplifying FOMO, creating herd behavior that contributes to market volatility and speculative bubbles, as seen in phenomena like "meme stocks." The study also reveals that younger investors are more susceptible to FOMO, largely due to their reliance on social media for investment advice. The results suggest that enhancing financial literacy and promoting disciplined, long-term investment strategies are essential for mitigating the negative effects of FOMO. Regulatory interventions targeting misinformation on digital platforms may also help reduce the prevalence of FOMO-driven investment behavior. Future research should further investigate the psychological mechanisms behind FOMO and explore the long-term sustainability of FOMO-driven market practices.

Research on the Japanese Economy: The Impact of US-Japanese Relationship on the Economic Development of Japan After WWII

Living in a world full of diversity with all the countries having their specific ways and ideas of running and governing, the relationship between states and states becomes one of the most crucial factors in engaging in the peace of the world, which ensures the development together with the safety of every country on the planet. This piece of research paper investigates how the relationship of one country to another can have an impact on its total development, especially in terms of economics. In the paper, the author researches the specific case of the US-Japanese relationship and discusses how the relationship between Japan and the United States can influence economic development in Japan. The author provided two time period scenarios, which are the “Economic Miracal” era of Japan and the “Asset Price Bubble” era of Japan. By examining these case scenarios, the author concluded that a healthy US-Japanese relationship will subsequently lead to a healthy development of Japan’s economy. This provided the suggestion that states should maintain a balanced relationship with their allies to keep healthy growth as well as development.

Electricity Price Bubbles and Global Crisis: Does Financial Development Make a Difference?

The aim of this study is to investigate the existence of electricity price bubbles and identify the factors that contribute to their formation by conducting a comparative analysis between a developed country, Germany, and an emerging country, Romania. We employ the generalized sup ADF test, utilizing bi-annual data spanning from 2007 to 2022. Our findings reveal the presence of 2 distinct electricity price bubbles in both Germany and Romania. In Germany, the first bubble emerged in the second half of 2008, coinciding with the onset of the global economic crisis. Conversely, Romania did not experience a bubble as a result of the economic crisis during this period. The second electricity price bubble in both countries was primarily driven by Russia’s decision to halt gas supplies to Europe. Additionally, the surge in energy consumption following the economic recovery from the COVID-19 pandemic played a significant role. This research contributes to the broader discourse on energy economics by elucidating the mechanisms behind electricity price fluctuations in different economic contexts. The comparative approach underscores the importance of tailored policy responses that consider country-specific factors while addressing global challenges. As energy markets continue to evolve, such studies will be instrumental in guiding strategic decisions and fostering sustainable economic growth. JEL Classification: Q41, E31

The Current Situation of the Housing Market Bubble in Chinas First-tier Cities

Abstract: With the progression of China's economy and urbanization, the real estate industry experienced rapid growth, accompanied by increasing speculative activities, which led to a continuous rise in housing prices and the formation of a bubble. Therefore, the focus of this study was the current state of China's real estate bubble and potential solutions. Given the issue of excessively high real estate prices, this study specifically examined the price trends and factors contributing to the real estate bubble in four Chinese cities: Beijing, Shanghai, Guangzhou, and Shenzhen. The research methodology was as follows: First, data on the price-to-income ratio was collected to analyze the current state of housing prices in China, revealing that housing prices were still far above their actual value and beyond a reasonable range, thereby indicating the severity of the real estate bubble in China. Second, by analyzing data and reviewing the literature, the factors contributing to China's real estate bubble were identified and categorized into two main groups: policy-related and economic. On the policy side, factors included policy reforms, monetary easing, and reductions in both the benchmark interest rate and the reserve requirement ratio. On the economic side, factors included the growth in per capita disposable income and speculative behavior. Finally, this paper analyzed how a property tax could curb speculative activities by increasing the cost of purchasing properties, thereby reducing demand and speculative behavior. The findings revealed that the real estate bubble in China's first-tier cities remained severe, and that a property tax could help curb speculative activities and slow the pace of bubble expansion.

Eros, Inc.: Cupid, Capital, and the Crash of 1720

Abstract In Regency Paris, the triumphant introduction into the economy of mass printed paper currencies coincided with images of equally victorious winged amours (cupids): serialised embodiments, in both cases, of the ascendancy of the flitting and fluttering. Examining works by Charles Coypel, Bernard Picart and others, this essay contextualises the reprisal of the omnia vincit amor theme—the idea of love’s inescapable power—alongside the emergence of an equally indomitable financial culture. Amidst the bubble economy engineered by John Law, Amour served as incarnation of more than the salvific and emancipatory promise of a paper economy. Hailed for his ‘empire of love’, the tyrannical god also asserted the blend of seduction and subjugation practiced by a despotic state that demanded acquiescence: both to its banknotes, and to the purportedly ‘soft power’ exercised by the government-licensed Company of the Indies over French Louisiana’s Indigenous population.

When Chinese mania meets global frenzy: Commodity price bubbles

This paper examines price bubbles in global commodity markets. We find that positive bubbles are more driven by fundamental shocks, while negative bubbles are more influenced by pessimistic market views on prices and the economy. Furthermore, bubble determinants vary across geographic regions. Trader behavior and policy uncertainty play prominent roles in influencing price bubbles in China, while global bubbles are predominantly shaped by rational responses to inventory, growth, and inflation. Finally, only positive bubbles exhibit contagion across regions. Overall, our findings suggest that asset price bubbles arise from traders' behavioral responses to a combination of fundamental, macroeconomic, and idiosyncratic shocks.

Detecting market bubbles: A generalized LPPLS neural network model

To enhance bubble detection capabilities, we introduce two significant improvements to the Log-Periodic Power Law Singularity (LPPLS) model: (1) a novel fitting approach, which yields more accurate predictions of critical price distributions within a single sample window; (2) a restructured neural network approach further enhances the estimations of the probability distributions of the critical points across both time and price dimensions, and it can be fine-tuned with real-world data. The simulation and practical applications to typical asset price bubbles in cryptocurrencies, commodities, and equity indices demonstrate that our refined model, the Generalized-LPPLS Neural Network (G-LPPLS-NN), outperforms all other models we examined in terms of predictive accuracy for critical point distributions.

ANALYSIS OF BUBBLES ASSETS FOR WEIGHTED AVERAGE INTEREST RATES APPLIED TO BANK LOANS

This study examines the existence of the "bubble effect" in the average interest rates of loans applied by banks to various types of loans for consumers. The purpose of this article is the research of the bubble formations in the average interest rates applied by the banks to consumer, housing (home), vehicle, and commercial loan types. This article examines the existence of bubbles in the average loan interest rates of banks in Turkey using the GSADF unit root test developed by Phillips et al. (2015). Bubble assets are analyzed with weekly data for the period June 2019–March 2023. Monte Carlo simulations performed obtained critical values for the GSADF unit root test. The results show that the bubble effect on housing loan interest rates is statistically significant at the 0.05 level. Against this, although the existence of a bubble effect in consumer, vehicle, and commercial loan interest rates has been determined, these bubbles are statistically insignificant.

Japanese financial elites and banking supervision: the Ministry of Finance and the Bank of Japan

ABSTRACT Japan experienced a bubble economy in the late 1980s and a financial crisis in the 1990s, and the banking supervision system was criticized for failing to prevent excessive risk-taking behavior among commercial banks. In this study, I examine whether, and if so why, the banking supervision system deteriorated over the period in question, focusing on human capital, especially among the elites, in relation to banking supervision in Japan. I focus on two elements of banking supervision: the transition of supervisory policy and the characteristics (e.g. education, career path) of the heads of supervisory departments. The 49 Directors of the Financial Inspection Department in the MOF from 1927 to 1998 and the 26 Directors-General of the Bank Examination Department in the BOJ from 1928 to 1981 are analyzed. I also analyze the performance of several regional banks that appointed an ex-Director of the MOF as their president to check whether such an intimate bank – supervisor relationship worsened those banks’ management. The results showed no evidence of bad management as a result of that relationship. Rather, an increased burden on examiners and a reduced awareness of the importance of risk management led to the reduced effectiveness of banking supervision.

Detecting bubbles via FDR and FNR based on calibrated p-values

Detecting bubbles in asset prices is still an open question that has attracted considerable attention in recent years. This paper improves the bubble detection and dating approaches developed in recent years by Phillips and co-authors, proposing to assess the plausibility of its outcomes via the false discovery rate (FDR) and the false non-discovery rate (FNR) based on calibrated p-values. Calibrating p-values of unit root tests, applied sequentially to detect bubbles, allows recovery of their super-uniformity property, which is crucial for a valid implementation of the inferential procedure. The paper also develops original self-calibrated versions of both FDR and FNR for the specific problem of bubble testing. Calibrated p-values are implemented in an online false discovery-based approach which monitors bubbles in real time. The effectiveness of the proposed methods is investigated via a simulation study and an empirical application.