IDEAS home Printed from https://ideas.repec.org/p/hal/spmain/hal-03399135.html
   My bibliography  Save this paper

On the Possibility of Price Decreasing Bubbles

Author

Listed:
  • Philippe Weil

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

It is often argued that a rational bubble, because it is positive, must increase the price of a stock. This argument is not valid in general: as soon as bubbles affect interest rates, the fundamental value of a stock depends on whether or not a bubble is present. The existence of a rational bubble then might, by raising equilibrium interest rates, depress the fundamental to such an extent that the sum of the positive bubble and decreased fundamental falls short of the fundamental, no-bubble price. Under conditions made precise below, there can therefore be price decreasing bubbles, and an asset can be "undervalued."

Suggested Citation

  • Philippe Weil, 1989. "On the Possibility of Price Decreasing Bubbles," SciencePo Working papers Main hal-03399135, HAL.
    • Handle: RePEc:hal:spmain:hal-03399135
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03399135
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
    2. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
    3. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-687, August.
    4. Kenneth D. West, 1988. "Bubbles, Fads, and Stock Price Volatility Tests: A Partial Evaluation," NBER Working Papers 2574, National Bureau of Economic Research, Inc.
    5. Bernheim, B Douglas & Bagwell, Kyle, 1988. "Is Everything Neutral?," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 308-338, April.
    6. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
    7. Behzad T. Diba & Herschel I. Grossman, 1987. "On the Inception of Rational Bubbles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 697-700.
    8. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huo, T. -M., 1996. "Monetary confidence and asset prices," International Review of Economics & Finance, Elsevier, vol. 5(4), pages 363-376.
    2. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    3. Mark Pingle & Leigh Tesfatsion, 1993. "``Active Intermediation in a Monetary Overlapping Generations Economy''," Macroeconomics 9312001, University Library of Munich, Germany, revised 04 Dec 1993.
    4. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, February.
    5. Robert Vigfusson & Simon van Norden, 1996. "Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?," Staff Working Papers 96-11, Bank of Canada.
    6. Stefano Bosi & Thomas Seegmuller, 2013. "Rational bubbles and expectation-driven fluctuations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 69-83, March.
    7. Philippe Weil, 2008. "Overlapping Generations: The First Jubilee," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 115-134, Fall.
    8. Refet S. Gürkaynak, 2008. "Econometric Tests Of Asset Price Bubbles: Taking Stock," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 166-186, February.
    9. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).
    10. Pingle, Mark & Tesfatsion, Leigh, 1998. "Active Intermediation In Overlapping Generations Economies With Production And Unsecured Debt," Macroeconomic Dynamics, Cambridge University Press, vol. 2(2), pages 183-212, June.
    11. Hirano, Tomohiro & Toda, Alexis Akira, 2024. "On equilibrium determinacy in overlapping generations models with money," Economics Letters, Elsevier, vol. 239(C).
    12. van Norden, Simon, 1996. "Regime Switching as a Test for Exchange Rate Bubbles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(3), pages 219-251, May-June.
    13. Antoine Le Riche & Francesco Magris, 2016. "Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model," Economics Bulletin, AccessEcon, vol. 36(4), pages 2381-2393.
    14. Antoine Riche & Francesco Magris, 2017. "Equilibrium Dynamics in a Two-Sector OLG Model with Liquidity Constraint," Studies in Economic Theory, in: Kazuo Nishimura & Alain Venditti & Nicholas C. Yannelis (ed.), Sunspots and Non-Linear Dynamics, chapter 0, pages 147-174, Springer.
    15. Timothy J. Kehoe & David K. Levine & Andreu Mas-Colell & Michael Woodford, 1991. "Gross Substitutes in Large Square Economics," Levine's Working Paper Archive 2057, David K. Levine.
    16. Michael Assous & Pedro Garcia Duarte, 2017. "Challenging Lucas: from overlapping generations to infinite-lived agent models," Working Papers, Department of Economics 2017_03, University of São Paulo (FEA-USP).
    17. Brito, Paulo & Dilão, Rui, 2010. "Equilibrium price dynamics in an overlapping-generations exchange economy," Journal of Mathematical Economics, Elsevier, vol. 46(3), pages 343-355, May.
    18. Tolhurst, Tor N., 2018. "A Model-Free Bubble Detection Method: Application to the World Market for Superstar Wines," 2018 Annual Meeting, August 5-7, Washington, D.C. 274387, Agricultural and Applied Economics Association.
    19. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.
    20. Pingle, Mark & Tesfatsion, Leigh, 1998. "Active intermediation in a monetary overlapping generations economy1," Journal of Economic Dynamics and Control, Elsevier, vol. 22(10), pages 1543-1574, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:spmain:hal-03399135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Contact - Sciences Po Departement of Economics (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.