Speculative Bubbles and Financial Crises
Pengfei Wang () and
Yi Wen ()
American Economic Journal: Macroeconomics, 2012, vol. 4, issue 3, 184-221
Are asset prices unduly volatile and often detached from their fundamentals? Does the bursting of financial bubbles depress the real economy? This paper addresses these issues by constructing a DSGE model with speculative bubbles. We characterize conditions under which storable goods, regardless of their intrinsic values, can carry bubbles, and agents are willing to invest in such bubbles despite their positive probability of bursting. The results show that systemic risk, commonly perceived changes in the bubble's probability of bursting, can generate boom-bust cycles with hump-shaped output dynamics and produce asset price movements many times more volatile than the economy's fundamentals. (JEL E13, E23, E32, E44, G01, G12).
JEL-codes: E13 E23 E32 E44 G01 G12 (search for similar items in EconPapers)
Note: DOI: 10.1257/mac.4.3.184
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to AEA members and institutional subscribers.
Working Paper: Speculative bubbles and financial crisis (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:4:y:2012:i:3:p:184-221
Ordering information: This journal article can be ordered from
Access Statistics for this article
American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist
More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().