Journal article
Currency Bubbles Which Affect Fundamentals: A Qualitative Treatment
The Economic journal (London), Vol.100(400), pp.170-179
01/01/1990
DOI: 10.2307/2234194
Abstract
In models where asset prices are determined by expectations, the general possibility of "rational bubbles" emerges. The foreign exchange market is a case where it is plausible that bubbles may arise and have an effect on economic fundamentals. A phase diagram for rational bubbles is derived with 2 essential properties: 1. They are consistent with financial arbitrage. 2. They matter for the course of economic fundamentals. The explosive dynamic character of such bubbles does not seem a priori plausible, given the time series on share prices or the dollar. As an alternative possibility, it is shown that the simple addition of "white noise" to a model that also includes rational bubbles (governed by a Poisson process) generates outcomes with time series implications that look much more apt to be satisfied by the data than rational bubbles in the deterministic case.
Details
- Title: Subtitle
- Currency Bubbles Which Affect Fundamentals: A Qualitative Treatment
- Creators
- Marcus Miller - University of WarwickPaul Weller - University of Warwick
- Resource Type
- Journal article
- Publication Details
- The Economic journal (London), Vol.100(400), pp.170-179
- DOI
- 10.2307/2234194
- ISSN
- 0013-0133
- eISSN
- 1468-0297
- Publisher
- Oxford University Press
- Language
- English
- Date published
- 01/01/1990
- Academic Unit
- Finance
- Record Identifier
- 9984963147902771
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