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Money Is the Root of Asset Bubbles

Author

Listed:
  • Yu Awaya
  • Kohei Iwasaki
  • Makoto Watanabe

Abstract

This paper examines how monetary expansion causes asset bubbles. When there is no monetary expansion, a bubbly asset is not created due to a hold-up problem. Monetary expansion increases buyers’ money holdings, and then, dealers are willing to buy a worthless asset from sellers, in hopes of selling it to buyers who may not know that it is worthless—a bubble now occurs.

Suggested Citation

  • Yu Awaya & Kohei Iwasaki & Makoto Watanabe, 2024. "Money Is the Root of Asset Bubbles," CESifo Working Paper Series 10923, CESifo.
    • Handle: RePEc:ces:ceswps:_10923
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10923.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    bubbles; dealers; higher-order uncertainty; money;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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