Rational bubbles and macroeconomic fluctuations: The (de-)stabilizing role of monetary policy

Clain-Chamosset-Yvrard, Lise; Seegmuller, Thomas

doi:10.1016/j.mathsocsci.2015.01.003

Cited by 7 publications

(3 citation statements)

References 43 publications

(92 reference statements)

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“…Adult individuals do not work, consume and can now save through a diversified portfolio, which consists of deposits a 2,t+1 , houses h 3,t+2 , and physical capital k t+2 . 11 As in Clain-Chamosset-Yvrard and Seegmuller (2019), we assume that young individuals cannot invest in physical capital. Interpreting k t+2 as the value of firms, our assumption is in line with some empirical studies.…”

Section: Extension To a Production Economymentioning

confidence: 99%

Rational housing demand bubble

Clain-Chamoset-Yvrard,

Raurich,

Seegmuller

2023

Econ Theory

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We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. Multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases the housing price, housing price to income ratio and economic growth.

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Section: Extension To a Production Economymentioning

confidence: 99%

Rational housing demand bubble

Clain-Chamoset-Yvrard,

Raurich,

Seegmuller

2023

Econ Theory

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“…Most of the recent literature assumes financial frictions and examines the real effects of bubbles in closed economies, highlighting some interesting conclusions related to the Great Recession. For instance, Clain-Chamosset-Yvrard and Seegmuller [13] consider an overlapping generations exchange economy where households realize a portfolio choice between money and a bubble under a partial cash-in-advance constraint affected by the size of the bubble. A higher value of the bubble reduces the need of cash, and thus increases the fraction of consumption purchased on credit.…”

Section: International Transmission Of Sunspot Fluctuations and Bubblmentioning

confidence: 99%

Introduction to international financial markets and banking systems crises

Boucekkine¹,

Nishimura²,

Venditti³

2017

Journal of Mathematical Economics

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“…Recently, some contributions have also paid attention to the link between fluctuations of rational bubbles and credit market imperfections. Bosi and Seegmuller () and Clain‐Chamosset‐Yvrard and Seegmuller () underline the role of collaterals to explain expectation‐driven fluctuations around a bubbly steady state.…”

Section: Introductionmentioning

confidence: 99%

Rational bubbles and expectation‐driven fluctuations

Bosi

Seegmuller

2013

Int J of Economic Theory

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In this paper, we propose a unified approach to understand the fluctuations of a rational bubble. We focus on an overlapping generations exchange economy where each household makes a portfolio choice between money, held because of a liquidity constraint, and another asset with no fundamental value. We show the existence of equilibria where the second asset takes a positive value as a pure rational bubble. There may exist endogenous cycles and bubble fluctuations driven by the volatility of agents' expectations. An expansionary monetary policy can shelter the economy from these endogenous fluctuations, but this positive effect is counterbalanced by a welfare loss according to the Friedman critique: there is a trade-off between the stability and the stationary welfare target. Eventually, we consider a temporary bubble on real balances as an alternative source of self-fulfilling cycles.

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Rational bubbles and macroeconomic fluctuations: The (de-)stabilizing role of monetary policy

Cited by 7 publications

References 43 publications

Rational housing demand bubble

Rational housing demand bubble

Introduction to international financial markets and banking systems crises

Rational bubbles and expectation‐driven fluctuations

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