Understanding Bubbly Episodes
AbstractOver the last two decades US aggregate wealth has fluctuated substantially. Against the backdrop of the Great Recession, the effects of these boom-and-bust cycles have come to dominate academic and policy discussions. How can we explain these fluctuations in wealth? Why are these fluctuations associated with changes in consumption, investment and output? In this note, we argue that answers to these questions entail the addition of two ingredients to existent macroeconomic models: rational bubbles and financial frictions. We explain why each of these building blocks is crucial to understand recent events and how they can be seamlessly integrated in standard models.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Other versions of this item:
- Carvalho, Vasco M & Martin, Alberto & Ventura, Jaume, 2012. "Understanding Bubbly Episodes," CEPR Discussion Papers 8924, C.E.P.R. Discussion Papers.
- Vasco Carvalho & Alberto Martín & Jaume Ventura, 2012. "Understanding Bubbly Episodes," Working Papers 605, Barcelona Graduate School of Economics.
- Vasco Carvalho & Alberto Martin & Jaume Ventura, 2012. "Understanding bubbly episodes," Economics Working Papers 1301, Department of Economics and Business, Universitat Pompeu Fabra.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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1995-5, Edinburgh School of Economics, University of Edinburgh.
- Karl Farmer, 2014.
"Financial Integration and EMU’s External Imbalances in a Two-Country OLG Model,"
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Springer, vol. 20(1), pages 1-21, February.
- Karl Farmer, 2013. "Financial Integration and EMU's External Imbalances in a Two-Country OLG Model," Graz Economics Papers 2013-07, University of Graz, Department of Economics.
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