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A Double Counting Problem in the Theory of Rational Bubbles

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  • Hajime Tomura

    (Faculty of Political Science and Economics,Waseda University,)

Abstract

In a standard overlapping generations model, the unique equilibrium price of a Lucas' tree can be decomposed into the present discounted value of dividends and the stationary monetary equilibrium price of fiat money, the latter of which is a rational bubble. Thus, the standard interpretation of a rational bubble as the speculative component in an asset price double-counts the value of pure liquidity that is already part of the fundamental price of an interest-bearing asset.

Suggested Citation

  • Hajime Tomura, 2016. "A Double Counting Problem in the Theory of Rational Bubbles," UTokyo Price Project Working Paper Series 066, University of Tokyo, Graduate School of Economics.
    • Handle: RePEc:upd:utppwp:066
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    References listed on IDEAS

    as
    1. Stefan Homburg, 1991. "Interest and Growth in an Economy with Land," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 450-459, May.
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    More about this item

    Keywords

    rational bubbles; liquidity.;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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