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Bubbles tomorrow and bubbles yesterday, but never bubbles today?

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  • John C. Williams

Abstract

Standard asset price models have generally failed to detect bubbles, with enormous costs to the economy. Economists are now creating promising new models that account for bubbles by relaxing the assumption of rational expectations and allowing people’s decisions to be driven by their perceptions of what the future may hold. ; This letter is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco to the National Association for Business Economics in San Francisco, California, on September 9, 2013.

Suggested Citation

  • John C. Williams, 2013. "Bubbles tomorrow and bubbles yesterday, but never bubbles today?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sept23.
    • Handle: RePEc:fip:fedfel:y:2013:i:sept23:n:2013-27
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    References listed on IDEAS

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    1. Gelain, Paolo & Lansing, Kevin J., 2014. "House prices, expectations, and time-varying fundamentals," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 3-25.
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    4. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May.
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    6. Morten Balling & Christian Sinding Bentzen & Jesper Berg & Alan Boyce & Per Callesen & José Carrasco-Gallego & Giovanni Dell’Ariccia & R. Glenn Hubbard & Deniz Igan & Marius Jurgilus & Kevin J. Lansin, 2013. "Property Prices and Real Estate Financing in a Turbulent World," SUERF Studies, SUERF - The European Money and Finance Forum, number 2013/4 edited by Morten Balling & Jesper Berg.
    7. Marius Jurgilas & Kevin J. Lansing, 2013. "Housing Bubbles and Expected Returns to Homeownership – Lessons and Policy Implications," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    8. John H. Cochrane, 2008. "The Dog That Did Not Bark: A Defense of Return Predictability," Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1533-1575, July.
    9. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Books, National Bureau of Economic Research, Inc, number abra56-1.
    10. Tom Engsted & Thomas Q. Pedersen, 2012. "Predicting returns and rent growth in the housing market using the rent-to-price ratio: Evidence from the OECD countries," CREATES Research Papers 2012-58, Department of Economics and Business Economics, Aarhus University.
    11. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 373-416.
    12. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
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    1. repec:eee:jeborg:v:148:y:2018:i:c:p:189-198 is not listed on IDEAS
    2. Anundsen, André Kallåk & Heebøll, Christian, 2016. "Supply restrictions, subprime lending and regional US house prices," Journal of Housing Economics, Elsevier, vol. 31(C), pages 54-72.
    3. Bertsatos, Georgios & Sakellaris, Plutarchos, 2016. "A dynamic model of bank valuation," Economics Letters, Elsevier, vol. 145(C), pages 15-18.
    4. Lansing, Kevin J. & Pyle, Benjamin, 2015. "Persistent overoptimism about economic growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    5. Gelain, Paolo & Lansing, Kevin J., 2014. "House prices, expectations, and time-varying fundamentals," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 3-25.
    6. Roman Frydman & Joshua R. Stillwagon, 2016. "Stock-Market Expectations: Econometric Evidence that both REH and Behavioral Insights Matter," Working Papers Series 44, Institute for New Economic Thinking.

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    Keywords

    Asset pricing;

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