Distinguished Speaker Series: Bubbly Financial Globalization | Asian Development Bank Institute - ADBI | 31 January 2019 | ADBI( Kasumigaseki Building), Japan, 〒100-0011 Tokyo, Chiyoda, Uchisaiwaicho, 1 Chome, 第一ホテル東京フィットネス＆アクアゾーン 1

Has the recent surge in financial globalization made the world economy more prone to widespread episodes of asset price bubbles? This Distinguished Scholar Seminar will feature Professor Giacomo Rondina who addresses this question by developing a stylized global equilibrium model of two production economies with diverse financial development—North and South.

In autarky, the financially mature North produces enough assets to prevent bubbles from occurring.

In the financially undeveloped South, bubbles can potentially offset the shortage of financial assets, but the limited leverage potential of productive entrepreneurs makes the required return on the bubble unsustainable. When financial globalization takes place, bubbles become possible if two conditions are met: the financial development of the South is increased and globalized financial markets display a shortage of asset supply for intermediated saving.

The author argues that both conditions seem to have gradually emerged over that last twenty years.