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Bubbles and Fools

Author

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  • Barlevy, Gadi

    () (Federal Reserve Bank of Chicago)

Abstract

This article reviews the literature on greater-fool theories of bubbles, which argue that bubbles can arise if traders are willing to buy assets they know to be overvalued because they hope to later sell them at a profit to others. The author discusses two approaches that attempt to model this phenomenon and what these approaches imply for economic policy.

Suggested Citation

  • Barlevy, Gadi, 2015. "Bubbles and Fools," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 54-76.
  • Handle: RePEc:fip:fedhep:00013
    as

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    References listed on IDEAS

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    3. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
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    5. Joseph Zeira, 2000. "Informational overshooting, booms and crashes," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
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    7. John H. Cochrane, 2014. "Challenges for Cost-Benefit Analysis of Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 63-105.
    8. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
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    17. Antonio Doblas‐Madrid, 2012. "A Robust Model of Bubbles With Multidimensional Uncertainty," Econometrica, Econometric Society, vol. 80(5), pages 1845-1893, September.
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    Cited by:

    1. Doblas-Madrid, Antonio, 2016. "A finite model of riding bubbles," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 154-162.

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    Keywords

    Bubbles; financial crisis;

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