Asset Bubbles  

An asset bubble is when the value of assets increases much faster than its real underlying value. After a while the price of the asset becomes divorced from a reasonable valuation and a bubble can often be followed by a bust - when prices fall and regain equilibrium.

Examples of Asset Bubbles

Rising house prices in the US 1998-2006. House prices rose by nearly 200%, faster than incomes and inflation. This was followed by falling house prices in 07-08

Rising house Prices in Japan in 1980s. This was followed by a long period of deflation

 

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