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Bubbly Liquidity

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Listed:
  • Emmanuel Farhi
  • Jean Tirole

Abstract

This paper analyses the possibility and the consequences of rational bubbles in a dynamic economy where financially constrained firms demand and supply liquidity. Bubbles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of corporate income; they crowd investment in (out) when liquidity is abundant (scarce). We analyse extensions with firm heterogeneity and stochastic bubbles. Copyright 2012, Oxford University Press.

Suggested Citation

  • Emmanuel Farhi & Jean Tirole, 2012. "Bubbly Liquidity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 678-706.
    • Handle: RePEc:oup:restud:v:79:y:2012:i:2:p:678-706
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    File URL: http://hdl.handle.net/10.1093/restud/rdr039
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    References listed on IDEAS

    as
    1. Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1243-1259.
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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