Market Fundamentals versus Price-Level Bubbles: The First Tests

Determinacy, indeterminacy and dynamic misspecification in linear rational expectations models

“…The uniqueness of Φ c,1 and Φ c,2 (and Υ) in N (γ 0 ) suggests that a consistent estimate of γ can be retrieved, under determinacy, from the estimation of the reduced form VAR in Eq.s (28) subject to the restrictions in Eq. (23).…”

The incentive to acquire information and financial market efficiency

“…Most bubble tests have been performed on inflation and foreign exchange market data (see, for example, Flood and Garber, 1980;Frankel and Froot;, Meese, 1987. The ana1ysis pertaining to bubbles in stock markets is limited to variance bound tests as, for example, in Grossman and Schiller (1981), LeRoy (1984), Mankiw, Romer and Shapiro (1985), and Kleidon (1987).…”

“…In recent years an empirical literature has developed on testing for "bubbles" and/or "sunspots" (see e. g., ~1eese, 1987 andFlood andGarber, 1982). These concepts have the connotation of some irrationaiity and "excessive" price volatility .…”

On the performance of West’s bubble test: A simulation approach

“…These can be classified, in general, as either exogenous or intrinsic bubbles based on if they are exogenous to or depend in a non-linear deterministic way on fundamentals. Exogenous bubbles are examined among others by Flood and Garber [7], Blanchard and Watson [5], and Flood and Garber [8], while papers analyzing intrinsic bubbles include Froot and Obstfeld [9] and Driffill and Sola [10].…”