The Macroeconomic Effects Of Bubbles

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Bubbles usually refer to a situation where assets or financial instruments see a rapid increase in price which is not justified by the forces of supply and demand factors of an asset. These bubbles are irregular and generate important macroeconomic effects. Consumption, investment and productivity growth, all tend to rush when a bubble pops up, and then collapse when the bubble “bursts”. Bubble can be occurred in any form of assets or financial instrument for example Commodities, Debt, Stocks, Real Estate and Derivatives. This event was called a mania on its start before changing to bubble. A plant called Tulip was very famous in Holland 1637, everybody admired it for his beauty, the concept of a mania reflected the fact…show more content…
A bubble can apparent in multivariate diverse contexts. A bubble can appear virtually anywhere –there have been bubbles in China, the United States, Argentina, Holland, Spain, Australia, Japan, Zimbabwe, and many other regions. It can it also be reflected in the price of a great variety of commodities and assets bubbles have appeared in tulips, companies‟ non traded shares, stocks, real estate and others. And bubbles emerge both in depression, recession, or expansion cycles; adopting different uniqueness. The effects of a bubble can also differ depending on different factors. And the result of the bubble might be distinct as well for every single agent. However, there is clear evidence that every single bubble generates a redistribution of wealth, directly or indirectly, among the different agents in the economy. It is clear that a bubble can be harmful for an economy, but it may basically generate a strong provisional deviation from a price tendency, or it could even benefit the economy. Early 1600s - 1617 Holland The Tulip mania Tulip mania or Tulipomania was a period in the Dutch Golden Age during…show more content…
By 1992, Japan’s Nikkei stock index fall to 15,000 from its peak of nearly 40,000 and the country’s real estate markets were destroyed along with the rest of the economy. Since 1989, Japan’s Bubble Economy has disheartened for over two decades, leading to this time being called the “Lost Decades.” The Dot-com Bubble (Late 1990s) The Dot-com Bubble was a speculative bubble in the shares of early internet companies called “Dot-coms.” From the mid to late-1990s, technology company stocks in the Nasdaq stock index fly to incredible heights, making scores of investors and technology company founders enormously wealthy. At this time, many people began to believe that technology had showed the way to the creation of a “New Economy” where the conventional business cycle and recessions were a thing of the past. These “New Economy” beliefs led to excessive risk-taking in business and investments as Dot-com companies went public even though they had negative earnings. In early 2000, the technology stock bubble gone down dramatically as the Nasdaq plunged from 5,000 to nearly 1,000 by 2002 and the U.S. economy was threw into a
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