Living with a Monetary System infected by Bubbles

Benjamin Eden ()

No 1119, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: I study the real effects of bubbles in a price-settingenvironment. Bubbles cause price dispersion and overinvestment in assets that are overvalued. And when they pop some goods are not sold and capacity is not fully utilized. I argue that a government monopoly on the creation of bubble assets is desirable but may be difficult to achieve. A non-linear tax on capital gains and a 'high' interest rate policy can play a role in protecting the government�s monopoly on the creation of bubble assets.

Keywords: Bubbles; Money; Money Substitutes (search for similar items in EconPapers)
JEL-codes: E31 E32 E42 E52 (search for similar items in EconPapers)
Date: 2011-09
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:1119

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