Reading notes from "The Origin of Financial Crises"
Reading notes from The Origin of Financial Crises:
- The critical difference between markets for goods and those for assets is how the markets respond to shifting prices, or equivalently shifting demand. In the goods market, higher (lower) prices trigger lower (higher) demand; in the asset market higher (lower) prices trigger higher (lower) demand. One market is a stable equilibrium-seeking system and the other habitually prone to boom-bust cycles, with no equilibrium state.
- In goods markets items are purchased for consumption; in asset markets items are purchased for their potential to change price; making the nature of how the markets’ participants respond to price changes fundamentally different.