Understanding Bubbly Episodes
AbstractOver the last two decades U.S. 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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8924.
Date of creation: Apr 2012
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Other versions of this item:
- 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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