A leverage-based model of speculative bubbles

Gadi Barlevy

No WP-08-01, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper develops an equilibrium model of speculative bubbles that can be used to explore the role of various policies in either giving rise to or eliminating the possibility of asset bubbles, e.g. restricting the use of certain types of loan contracts, imposing down- payment restrictions, and changing inter-bank rates. As in previous work by Allen and Gorton (1993) and Allen and Gale (2000), a bubble arises in the model because traders are assumed to purchase assets with borrowed funds. My model adds to this literature by allowing creditors and traders to enter into a more general class of contracts, as well as by allowing speculators to trade strategically.

Keywords: Speculation (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (23)

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Related works:
Journal Article: A leverage-based model of speculative bubbles (2014)
Working Paper: A leverage-based model of speculative bubbles (2011)
Working Paper: A Leverage Based Model of Speculative Bubbles (2008)
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