Asset Price Instability and Policy Responses: The Legacy of Liberalization

The problem of asset price bubbles, and more generally of instability in the financial system, has been a matter of concern since the 1980s but has only recently moved to the center of the macroeconomic policy debate. The main concern with bubbles arises when they burst, imposing losses on investors holding the bubble assets and potentially on the financial institutions that have extended credit to them. Asset price volatility is an inevitable consequence of financial market liberalization and, in extreme cases, generates asset price bubbles, the bursting of which can impose substantial economic and social costs. Policy responses within the existing liberalized financial system face daunting levels of uncertainty and risk. Given the pattern of increasing asset market volatility over recent decades and the policy issues highlighted in this paper, the future looks uncertain. Another significant cycle of asset price movements, especially in one of the major economies, could see a fundamental revision of thinking about the costs and benefits of liberalized financial systems.

A genetically informed study of the processes underlying the association between parental marital instability and offspring adjustment

Parental divorce is associated with problematic offspring adjustment, but the relation may be due to shared genetic or environmental factors. One way to test for these confounds is to study offspring of twins discordant for divorce. The current analyses used this design to separate the mechanisms responsible for the association between parental divorce, experienced either before or after the age of 16, and offspring well-being. The results were consistent with a causal role of divorce in earlier initiation of sexual intercourse and emotional difficulties, in addition to a greater probability of educational problems, depressed mood, and suicidal ideation. In contrast, the increased risk for cohabitation and earlier initiation of drug use was explained by selection factors, including genetic confounds.