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Sunspot Bubbles


  • Stefano Bosi

    () (EPEE, Université d’Evry)


Bubbles and money holding can reabsorb capital overaccumulation and restore the MGR in exogenous growth OLG economies. In contrast, under productive externalities and endogenous growth, bubbles and monetary saving can worsen an already inefficient underaccumulation. Under a simple credit market imperfection, we prove that bubbles can fluctuate around a bubbly balanced growth path as sunspot equilibria with shortrun effects on the saving rate.

Suggested Citation

  • Stefano Bosi, 2005. "Sunspot Bubbles," Documents de recherche 05-25, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  • Handle: RePEc:eve:wpaper:05-25

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    References listed on IDEAS

    1. Crettez, Bertrand & Michel, Philippe & Wigniolle, Bertrand, 1999. "Cash-in-Advance Constraints in the Diamond Overlapping Generations Model: Neutrality and Optimality of Monetary Policies," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 431-452, July.
    2. Bertocchi, Graziella, 1991. "Bubbles and inefficiencies," Economics Letters, Elsevier, vol. 35(2), pages 117-122, February.
    3. Parent, Antoine & Rault, Christophe, 2004. "The Influences Affecting French Assets Abroad Prior to 1914," The Journal of Economic History, Cambridge University Press, vol. 64(02), pages 328-362, June.
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    More about this item


    overlapping generations model; bubbles; cash-in-advance constraint; sunspot equilibria;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets


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