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Rational bubbles in a monetary economy

Author

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  • Zhou Ge

    (College of Economics and Academy of Financial Research, Zhejiang University, Hangzhou, China)

Abstract

This study explores rational bubbles in a monetary economy using an endogenous growth model with status seeking. Rational bubbles may arise when the money growth rate is higher than some threshold level. In a bubbly economy, a higher money growth rate leads to a larger bubble size, while the monetary policy is super-neutral. However, in a bubbleless economy, the monetary policy is non-neutral. Based on a comparative analysis of the calibrated model, I argue that an optimal monetary policy that maximizes the social welfare of a bubbleless economy may trigger bubbles and hurt the economy.

Suggested Citation

  • Zhou Ge, 2018. "Rational bubbles in a monetary economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-8, January.
    • Handle: RePEc:bpj:bejmac:v:18:y:2018:i:1:p:8:n:12
    DOI: 10.1515/bejm-2016-0242
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    More about this item

    Keywords

    monetary policy; rational bubbles; status seeking;
    All these keywords.

    JEL classification:

    • 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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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