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Bubbly Liquidity

Emmanuel Farhi () and Jean Tirole

No 09-101, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper analyzes the possibility and the consequences of asset price overvaluation 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 the economic implications of firm heterogeneity, endogenous corporate governance, and stochastic bubbles. Finally we draw some implications for the way public policy could react to bubbles.

JEL-codes: E2 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mac
Date: 2009-10, Revised 2011-02
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Journal Article: Bubbly Liquidity (2012) Downloads
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Working Paper: Bubbly Liquidity (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:21965

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