Rational Bubbles in the Price of Gold

Behzad Diba and Herschel Grossman

No 1300, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper describes a theoretical and empirical study of the possibility of rational bubbles in the relative price ofgold. The critical implication of the theoretical analysis is that, if rational bubbles exist, the time series of the relative price of gold, as well as any time series obtained by differencing a finite number of times, is nonstationary. The empirical evidence relating to this nonstationarity property involves diagnostic checks for stationarity carried out in both the time domain and the frequency domain. This evidence strongly suggests that the process generating the first difference of the log of the relative price of gold is stationary, a finding that is inconsistent with the existence of rational bubbles. More broadly, the empirical analysis finds a close correspondence between the time series properties of the relative price of gold and the time series properties of real interest rates,which the theory relates to the time series properties of the fundamental component of the relative price of gold. In sum, the evidence is consistent with the combined conclusion that the relative price of gold corresponds to market fundamentals, that the process generating first differences of market fundamentals is stationary, and that actual price movements do not involve rational bubbles.

Date: 1984-03
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

Published as "Explosive Bubbles in Stock Prices", American Economic Review, Vol. 78, no. 3 (1988): 520-530.
Published as "The Theory of Rational Bubbles in Stock Prices", Economic Journal, Vol. 98 no. 3 92 (1988): 746-754. Sep., 1988

Downloads: (external link)
http://www.nber.org/papers/w1300.pdf (application/pdf)

Related works:
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:nbr:nberwo:1300

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w1300

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().