Bubbly Liquidity

Jean Tirole and Emmanuel Farhi

No 1081, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper analyzes the possibility and the consequences of rational bubbles in a dynamic economy where financially constrained firms demand and supply liquidity. Bubbles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of corporate income; they crowd investment in (out) when liquidity is abundant (scarce). We analyze extensions with firm heterogeneity and stochastic bubbles.

Date: 2011
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Related works:
Journal Article: Bubbly Liquidity (2012)
Working Paper: Bubbly Liquidity (2011)
Working Paper: Bubbly Liquidity (2011)
Working Paper: Bubbly Liquidity (2011)
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