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Living with a Monetary System infected by Bubbles

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  • Benjamin Eden

    ()
    (Department of Economics, Vanderbilt University)

Abstract

I study the real effects of bubbles in a price-settingenvironment. Bubbles cause price dispersion and overinvestment in assets that are overvalued. And when they pop some goods are not sold and capacity is not fully utilized. I argue that a government monopoly on the creation of bubble assets is desirable but may be difficult to achieve. A non-linear tax on capital gains and a 'high' interest rate policy can play a role in protecting the government�s monopoly on the creation of bubble assets.

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File URL: http://www.accessecon.com/pubs/VUECON/vu11-w19.pdf
File Function: First version, September 2011
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1119.

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Date of creation: Sep 2011
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Handle: RePEc:van:wpaper:1119

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Bubbles; Money; Money Substitutes;

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  1. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  2. Jovanovic, Boyan, 2008. "Bubbles In Prices Of Exhaustible Resources," Working Papers 45830, American Association of Wine Economists.
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