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Some econometric results for the Blanchard-Watson bubble model

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  • Søren Johansen

    ()
    (University of Copenhagen and CREATES)

  • Theis Lange

    ()
    (University of Copenhagen and CREATES)

Abstract

The purpose of the present paper is to analyse a simple bubble model suggested by Blanchard and Watson. The model is defined by y(t) =s(t)?y(t-1)+e(t), t=1,…,n, where s(t) is an i.i.d. binary variable with p=P(s(t)=1), independent of e(t) i.i.d. with mean zero and finite variance. We take ?>1 so the process is explosive for a period and collapses when s(t)=0. We apply the drift criterion for non-linear time series to show that the process is geometrically ergodic when p

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-17.

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Length: 9
Date of creation: 09 May 2011
Date of revision:
Handle: RePEc:aah:create:2011-17

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Web page: http://www.econ.au.dk/afn/

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Keywords: Time series; explosive processes; bubble models.;

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  1. Frédérique Bec & Anders Rahbek & Neil Shephard, 2008. "The ACR model: a multivariate dynamic mixture autoregression," THEMA Working Papers 2008-11, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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