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Some Econometric Results for the Blanchard-Watson Bubble Model

Author

Listed:
  • Søren Johansen

    (Department of Economics, University of Copenhagen)

  • Theis Lange

    (Department of Biostatistics, University of Copenhagen)

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

Suggested Citation

  • Søren Johansen & Theis Lange, 2011. "Some Econometric Results for the Blanchard-Watson Bubble Model," Discussion Papers 11-15, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:1115
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    References listed on IDEAS

    as
    1. Olivier J. Blanchard & Mark W. Watson, 1982. "Bubbles, Rational Expectations and Financial Markets," NBER Working Papers 0945, National Bureau of Economic Research, Inc.
    2. Frédérique Bec & Anders Rahbek & Neil Shephard, 2008. "The ACR Model: A Multivariate Dynamic Mixture Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 583-618, October.
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    More about this item

    Keywords

    time series; explosive processes; bubble models;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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