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Apparent Bubbles and Misspecified Fundamentals

Author

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  • Gregor W. Smith

Abstract

Deviations from ergodicity in fundamentals may give rise to apparent bubbles (non-stationary residuals) in time series models of asset prices if an econometrician is unaware of them. This paper examines a number of such deviations in the form of expected, future, regime changes and explicitly calculates the effects of the misspecification. Some positive theories of currency reform and exchange rate pegging with endogenous process switching do not generally give rise to apparent bubbles.

Suggested Citation

  • Gregor W. Smith, 1987. "Apparent Bubbles and Misspecified Fundamentals," Working Paper 692, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:692
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    Cited by:

    1. Miller, M. & Weller, P. & Williamson, J., 1989. "The Stabilizing Properties Of Target Zones," The Warwick Economics Research Paper Series (TWERPS) 318, University of Warwick, Department of Economics.

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