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Another Look at the Boom and Bust of Financial Bubbles

Author

Listed:
  • Andrea Beccarini

    (University of Munster, Department of Economics)

Abstract

A rational bubble is explained through the covariance between the marginal rate of substitution and the future price. Surprisingly, in the present liter- ature, this quantity has always been set equal to zero either because of a first-order Taylor approximation, or because of a risk-neutrality assumption. One first shows that the intrinsic bubble of Froot and Obstfeld (1991) is a re-parameterization of the quantity in question. One then shows how this quantity depends on economic shocks after introducing a Taylor rule-based monetary policy. Some empirical evidence is also presented.

Suggested Citation

  • Andrea Beccarini, 2015. "Another Look at the Boom and Bust of Financial Bubbles," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 417-423, November.
    • Handle: RePEc:cuf:journl:y:2015:v:16:i:2:beccarini
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    References listed on IDEAS

    as
    1. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
    2. Froot, Kenneth A & Obstfeld, Maurice, 1991. "Intrinsic Bubbles: The Case of Stock Prices," American Economic Review, American Economic Association, vol. 81(5), pages 1189-1214, December.
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    More about this item

    Keywords

    Bubbles; Present-value model; Monetary rule;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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