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Predicting bubbles

Listed author(s):
  • Earl A. Thompson
  • Charles R. Hickson
Registered author(s):

    While endogenous asset-price bubbles cannot exist without informationally monopolistic market conditions, even when such conditions exist, such bubbles occur under laissez faire only for relatively short durations and only as random and therefore unpredictable phenomena such as in mixed-strategy equilibria. In contrast, governmentally generated bubbles – identifiable by their enormity, long-duration, and concomitant supply increases – are predictable. Two alternative causal observations reveal when one of these enormous bubbles is about to be rationally, albeit probably subconsciously, created by a state's rulers. The first causal observation, government-debt-induced-imminent-revolution, and its underlying model, predict history's most notorious stock-market bubbles (i.e. the South Sea and Mississippi Bubbles.) The modern emergence of strong central governments, which came with the advent of government-debt-holding central banks, has made such bubbles obsolete. The second causal observation is a suddenly diminished governmental concern for its middle class. This observation predicts bubbles as a secondary part of a sequence of governmental-redistribution-based policy-complements.

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    Article provided by Inderscience Enterprises Ltd in its journal Global Business and Economics Review.

    Volume (Year): 8 (2006)
    Issue (Month): 3/4 ()
    Pages: 217-246

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    Handle: RePEc:ids:gbusec:v:8:y:2006:i:3/4:p:217-246
    Contact details of provider: Web page: http://www.inderscience.com/browse/index.php?journalID=168

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