Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies

Robert Kollmann ()

No 14367, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies rational bubbles in non-linear dynamic general equilibrium models of the macroeconomy. The term ‘rational bubbles’ refers to multiple equilibria arising from the absence of a transversality condition (TVC) for capital. The lack of TVC can be due to an overlapping generations structure. Rational bubbles reflect self-fulfilling fluctuations in agents’ expectations about future investment. In contrast to explosive rational bubbles in linearized models (Blanchard (1979)), the rational bubbles in non-linear models here are stable and bounded. Bounded bubbles can generate persistent fluctuations of real activity, and capture key business cycle stylized facts. Both closed and open economies are analyzed. In a non-linear two-country model with integrated financial markets, bubbles must be perfectly correlated across countries.

Keywords: Rational bubbles; Boom-bust cycles; Business cycles in closed and open economies; Non-linear dsge models; Long-plosser model; Dellas model (search for similar items in EconPapers)
JEL-codes: C6 E1 E3 F3 F4 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP14367 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies (2020)
Working Paper: Rational bubbles in non-linear business cycle models: Closed and open economies (2020)
Working Paper: Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies (2020)
Working Paper: Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14367

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14367

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().