Apparent Bubbles and Misspecified Fundamentals

Gregor Smith

Working Paper from Economics Department, Queen's University

Abstract: Deviations from ergodicity in fundamentals may give rise to apparent bubbles (non-stationary residuals) in time series models of asset prices if an econometrician is unaware of them. This paper examines a number of such deviations in the form of expected, future, regime changes and explicitly calculates the effects of the misspecification. Some positive theories of currency reform and exchange rate pegging with endogenous process switching do not generally give rise to apparent bubbles.

Keywords: bubbles; regime changes; stochastic process switching (search for similar items in EconPapers)
Pages: 18 pages
Date: 1987
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:692

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