A Model Of Formation Of Asset Beubbles
AbstractA non-stationary time series is derived to describe the process of the formation of asset bubbles. The model is based on leverage and easy credit: the root cause of all financial bubbles. The discrete version of the model is used to present the intuition behind the approach and discuss its policy implications. A simple numerical example that models housing bubbles is used to illustrate the ease of implementing such models in practice using a spreadsheet. The final section presents the continuous time version of the model.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 29 (2010)
Issue (Month): ()
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Asset Bubbles; Housing Bubbles; Bursting of Asset Bubbles; Leverage; Credit; Cost of Fund; Volatility Non Stationary; Policy Implication; Investment; Return;
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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