Tropical Bubbles : Asset Prices in Latin America, 1980-2001

Herrera, Santiago ; Perry, Guillermo

World Bank, Washington, DC

关键词: AGGREGATE DEMAND;    ASSET PRICE BUBBLES;    ASSET PRICES;    ASSET PRICING;    AUTOREGRESSION;   

DOI  :  10.1596/1813-9450-2724
RP-ID  :  WPS2724

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The authors test for the existence ofasset price bubbles in Latin America in 1980-2001, focusingmainly on stock prices. Based on unit root and cointegrationtests, they find that they cannot reject the hypothesis ofbubbles. They arrive at the same conclusion using Froot andObstfeld's intrinsic bubbles model. To examineempirical regularities of these bubble episodes in theregion, the authors identify periods of significant stockprice overvaluation. They quantify the relative importanceof different factors that determine the probability ofbubble occurrence, focusing on the contrast between thecountry-specific variables and the common external factors.They include as country-specific variables both the leveland the volatility of domestic credit growth, the volatilityof asset returns, the capital flows to each country, and theterms of trade. As common external variables, they considerthe degree of asset overvaluation in the U.S. stock and realestate markets and the term spread of U.S. Treasurysecurities. To quantitatively assess the relative importanceof each factor, they estimate a logit model for a panel offive Latin American countries from 1985 to 2001. In general,the authors find that the marginal probabilities of commonand country-specific variables are of roughly the same orderof magnitude. This finding contrasts with those of previousstudies that real asset returns in Latin America aredominated by local factors. Finally, the authors explore themain channels through which asset prices affect realeconomic activity, with the most important being the balancesheet effect and its impact on bank lending. They show howthe allocation of bank lending across different sectorsresponded sensitively to real estate prices during the boomyears in countries that experienced banking crises. Thusasset price bubbles have long-lasting effects in thefinancial sector and, through this channel, on growth.Another channel through which asset prices-particularlystock market prices-affect long-run growth is through theireffect on investment. The authors find a strong positiveassociation between stock prices and investment and anegative effect of stock price volatility on investment. Anadditional motive for the central bank to monitor assetprices is the general coincidence of the crash episodesidentified by the authors with currency crises in the regionin the past two decades.