Journal ArticleDOI
Currency Bubbles Which Affect Fundamentals: A Qualitative Treatment
Marcus Miller,Paul A. Weller +1 more
TLDR
In this article, the authors analyze the effect of rational bubbles in the foreign exchange market, taking account of the interdependence between bubble paths and economic fundamentals, and the risk of the bubble ending, modeled as a Poisson process, adds an insurance premium to the interest differential governing currency arbitrage.Abstract:
The authors analyze the effect of rational bubbles in the foreign exchange market, taking account of the interdependence between bubble paths and economic fundamentals. The risk of the bubble ending, modeled as a Poisson process, adds an insurance premium to the interest differential governing currency arbitrage. Qualitative solutions are obtained for the exchange rate when fundamentals evolve deterministically and also when "white noise" errors are introduced. Copyright 1990 by Royal Economic Society.read more
Citations
More filters
Journal ArticleDOI
Fundamentals-dependent bubbles in stock prices
Shinsuke Ikeda,Akihisa Shibata +1 more
TL;DR: In this article, a continuous-time model of stock prices with dividends growing stochastically was examined, and crash risks were introduced, permitting bubbles to crash partially and display various stochastic process switching.
Journal ArticleDOI
Fixed money growth rules and the rate of inflation: global versus local dynamics
Donald A. R. George,Les Oxley +1 more
TL;DR: In this article, a perfect foresight, market clearing model of a simple monetary economy with real side interactions is analyzed and the local and global dynamics of the model are compared and shown to have very different implications (including policy implications).
Journal ArticleDOI
Fundamentals uncertainty, bubbles, and exchange rate dynamics☆
Shinsuke Ikeda,Akihisa Shibata +1 more
TL;DR: This article studied exchange rate dynamics with bubbles which depend on stochastic market fundamentals and showed that exchange rates with bubbles are likely to appear less volatile than the fundamentals in finite samples, and that both the variance bounds and cointegration tests might be ineffective in testing the absence of bubbles under fundamentals uncertainty.
Posted Content
Matlab code for "Numerical solution of dynamic equilibrium models under Poisson uncertainty"
Olaf Posch,Timo Trimborn +1 more
TL;DR: In this article, the authors proposed a simple and powerful numerical algorithm to compute the transition process in continuous-time dynamic equilibrium models with rare events by transforming the dynamic system of stochastic differential equations into a system of functional differential equations of the retarded type, i.e., they provided a guess of the policy function and solved the resulting system of (deterministic) ordinary differential equations by standard techniques.
Posted Content
Moral Hazard and the US Stock Market: Has Mr. Greenspan Created a Bubble?
TL;DR: Miller et al. as discussed by the authors show how the long run real interest rate not much, if at all, higher than the growth rate, dividend valuations become very sensitive to variations in the premium: and how the latter can be reduced by one-sided intervention policy by the Fed which lulls investors into a false sense of security.
References
More filters
Journal ArticleDOI
Expectations and Exchange Rate Dynamics
TL;DR: In this paper, the authors developed a theory of exchange rate movements under perfect capital mobility, a slow adjustment of goods markets relative to asset markets, and consistent expectations, and showed that along that path a monetary expansion causes the exchange rate to depreciate.
Posted Content
Lectures on Macroeconomics
TL;DR: Lectures on Macroeconomics as discussed by the authors provides the first comprehensive description and evaluation of macroeconomic theory in many years, and provides a broad assessment of what is important and what is not.
Journal ArticleDOI
Target Zones and Exchange Rate Dynamics
TL;DR: The authors developed a simple model of exchange rate behavior under a target zone regime and showed that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behaviour even when the exchange rate lies inside the zone and is thus not being defended actively.
Posted Content
Bubbles, Rational Expectations and Financial Markets
TL;DR: In this paper, the authors investigated the nature and presence of bubbles in financial markets and concluded that bubbles, in many markets, are consistent with rationality, that phenomena such as runaway asset prices and market crashes were consistent with rational bubbles.
Journal ArticleDOI
Asset bubbles and overlapping generations
TL;DR: In this article, the authors consider the interaction between productive and nonproductive savings in a growing economy and employ an overlapping generations model with capital accumulation and various types of rents, and give necessary and sufficient conditions for the existence of an aggregate bubble.