Financial Bubbles In The Context Of Globalization

Financial bubbles are nothing new to us. However, the problem with them lies in the inability with human society to effectively control them even after several hundred years of quest. This dissertation tries to unveil their nature in the current process of economic globalization.The launch pad of this research is the inherent relations between the financial bubbles and the market economy. This author realizes that the academic efforts in understanding financial bubbles have actually gone from the "rational bubbles" to the "irrational ones", on the basis of which it is argued that financial bubbles are in nature a kind of inevitability of the market economy mechanism rather than the synonym to "crash" or "panics", hence producing certain positive consequences to the economic evolution. While financial bubbles may lead to crash from time to time, the instruments to test their safety are much demanded.The study is set in the context of economic globalization process, which is argued as a natural tendency of the market mechanism and a favorable force to resource reallocation, technology updating and economic growth. Based on the causal analyses on the financial instability for the mature and emerging markets respectively, it is concluded that economic globalization promotes a healthy growth in the long run, that fluctuations are directly incurred by worsening macroeconomic conditions and/or inappropriate fiscal and/or monetary policies, and that the pathology of instability in the emerging economies is the institutional fragility of their own. The conclusion is further underpinned by statistical and case analyses on the recent crashs experienced in the mature and emerging markets like US, Japan, EMS, Mexico, Southeast Asia and Russia.The final part focuses on the illustration of the bubble phenomena, institutional defection and challenges with Chinese real estate market and financial system. After highlighting the "Beijing Consensus" in contrast to the "Washington Consensus", policy proposals are forwarded, which stress the vital importance of a sound market system and a sufficient risk management of the financial system.