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Bubbles In Prices Of Exhaustible Resources

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  • Boyan Jovanovic

Abstract

Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to be traded forever. And that may well be happening in the market for high-end Bordeaux wines.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 54 (2013)
Issue (Month): 1 (02)
Pages: 1-34

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Handle: RePEc:wly:iecrev:v:54:y:2013:i:1:p:1-34

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References

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  1. Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
  2. Deaton, A. & Laroque, G., 1989. "On The Behavior Of Commodity Prices," Papers 145, Princeton, Woodrow Wilson School - Development Studies.
  3. Champ,Bruce & Freeman,Scott & Haslag,Joseph, 2011. "Modeling Monetary Economies," Cambridge Books, Cambridge University Press, number 9781107003491, October.
  4. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
  5. Dasgupta,P. S. & Heal,G. M., 1985. "Economic Theory and Exhaustible Resources," Cambridge Books, Cambridge University Press, number 9780521297615, October.
  6. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis.
  7. Orley Ashenfelter & Kathryn Graddy, 2003. "Auctions and the Price of Art," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 763-787, September.
  8. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  9. Benjamin J. Burton & Joyce P. Jacobsen, 1999. "Measuring Returns on Investments in Collectibles," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 193-212, Fall.
  10. Timmermann, Allan, 1994. "Present value models with feedback : Solutions, stability, bubbles, and some empirical evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1093-1119, November.
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Citations

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Cited by:
  1. Benjamin Eden, 2011. "Living with a Monetary System infected by Bubbles," Vanderbilt University Department of Economics Working Papers 1119, Vanderbilt University Department of Economics.
  2. Óscar J. Arce & J. David López-Salido, 2008. "Housing bubbles," Banco de Espa�a Working Papers 0815, Banco de Espa�a.
  3. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "Financial Crash, Commodity Prices and Global Imbalances," NBER Working Papers 14521, National Bureau of Economic Research, Inc.
  4. Rolf Golombek & Alfonso A. Irarrazabal & Lin Ma, 2013. "OPEC's Market Power: An Empirical Dominant Firm Model for the Oil Market," CESifo Working Paper Series 4512, CESifo Group Munich.
  5. Ormos, Mihály & Erdős, Péter, 2011. "Borok mint alternatív befektetési lehetőségek
    [Wines as an alternative investment]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 158-172.
  6. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
  7. Dimson, Elroy & Rousseau, Peter L. & Spaenjers, Christophe, 2013. "The Price of Wine," Les Cahiers de Recherche 1019, HEC Paris.
  8. Roberto Piazza, . "Growth and Crisis, Unavoidable Connection?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  9. repec:van:wpaper:vuecon-sub-12-00019 is not listed on IDEAS
  10. Spaenjers, C., 2011. "Essays in alternative investments," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4944288, Tilburg University.
  11. Dimson, Elroy & Spaenjers, Christophe, 2011. "Ex post: The investment performance of collectible stamps," Journal of Financial Economics, Elsevier, vol. 100(2), pages 443-458, May.
  12. Jie Zheng, 2008. "Strong Bubbles and Common Expected Bubbles in a Finite Horizon Model," Levine's Working Paper Archive 814577000000000038, David K. Levine.
  13. Ing-Haw Cheng & Wei Xiong, 2013. "The Financialization of Commodity Markets," NBER Working Papers 19642, National Bureau of Economic Research, Inc.
  14. Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
  15. Benjamin Eden, 2012. "Does a low interest rate support private bubbles?," Vanderbilt University Department of Economics Working Papers 12-00010, Vanderbilt University Department of Economics.

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