The Boy Who Cried Bubble: Public Warnings against Riding Bubbles
AbstractAttempts by governments to stop bubbles by issuing warnings seem unsuccessful. This paper examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is late. Our model suggests that governments need to lower the probability of spurious warnings.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-03.
Length: 46 pages
Date of creation: Jan 2014
Date of revision:
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Riding bubbles; crashes; public warnings; asymmetric information;
Other versions of this item:
- Yasushi Asako & Kozo Ueda, 2014. "The Boy Who Cried Bubble: Public Warnings Against Riding Bubbles," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 52(3), pages 1137-1152, 07.
- Yasushi Asako & Kozo Ueda, 2012. "The Boy Who Cried Bubble: Public Warnings Against Riding Bubbles," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-282, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- Asako, Yasushi & Ueda, Kozo, 2014. "The boy who cried bubble: public warnings against riding bubbles," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 167, Federal Reserve Bank of Dallas.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-24 (All new papers)
- NEP-CTA-2014-01-24 (Contract Theory & Applications)
- NEP-MAC-2014-01-24 (Macroeconomics)
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