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    Ultra-Low Interest Rates, Overinvestment, and Growth in Emerging East Asia

    Schnabl, Gunther | March 2017
    Abstract
    The paper explores business cycles and growth dynamics in emerging East Asia within an ultra-low interest rate environment from the perspective of the monetary overinvestment theories of Mises and Hayek. It argues that, given a low interest rate environment in the large industrialized countries, the likelihood of overinvestment and therefore a crisis in emerging East Asia has increased independently from the exchange rate regime. Overinvestment can take the form of unsustainable booms on stock and real estate markets (as in Southeast Asia prior to the Asian crisis) or the misallocation of funds due to subsidized state-directed capital allocation (as is currently occurring in the People’s Republic of China). If further credit expansion counteracts a crisis triggered by a preceding overinvestment boom, it paralyzes growth in the long term, as Japan experienced.
    Citation
    Schnabl, Gunther. 2017. Ultra-Low Interest Rates, Overinvestment, and Growth in Emerging East Asia. © Asian Development Bank Institute. http://hdl.handle.net/11540/7714.
    Keywords
    International Financial Market
    Multilateral Financial Institutions
    Economic Recession
    Market
    Crisis
    Economic indicators
    Growth models
    Gross domestic product
    Macroeconomics
    Economic forecast
    Financial Stability
    Financial Management System
    Financial Restructuring
    Capital Market Development
    Market Development
    Economics
    Erosion
    International Economics
    Macroeconomic
    Macroeconomic Analysis
    Performance Evaluation
    Impact Evaluation
    Foreign and Domestic Financing
    Foreign Direct Investment
    Business recessions
    Multilateral development banks
    Regulatory reform
    Capital
    Exports
    Economic development projects
    Economic policy
    Economic forecasting
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    Citable URI
    http://hdl.handle.net/11540/7714
    Metadata
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    adbi-wp706.pdf (582.7Kb)
    Author
    Schnabl, Gunther
    Theme
    Finance
    Economics
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise