Harrison and Kreps showed in 1978 how the heterogeneity of investor beliefs can drive speculation, leading the price of an asset to exceed its intrinsic value. By focusing on an extremely simple market model – a finite-state Markov chain – the analysis of Harrison and Kreps achieved great clarity but limited realism. Here we achieve similar clarity with greater realism, by considering an asset ...

This paper provides an equilibrium framework to organize the following empirical observations in the U.S. housing market from 1975 to 2007: (i) housing tenure and vacancies were approximately constant, (ii) rents were approximately constant, and (iii) in the late 1990s there was a large house price appreciation. Borrowing ideas from search and matching theory, and closing the model with self-fu...

Should central banks respond to asset price bubbles? This paper explores this monetary policy question in a hypothetical economy subject to asset price bubbles. Despite the highly stylized structure of the model, the results reveal several practical monetary policy lessons. First, a monetary authority should generally respond to asset prices as long as asset prices contain reliable information ...

Abstract We use a time-varying parameter dynamic factor model with stochastic volatility estimated using Bayesian methods to disentangle the relative importance of common component in Federal Housing Finance Agency house price movements from state-specific shocks, over quarterly period 1975Q2 2017Q4. find that contribution national explaining fluctuations prices is critical. then change-point v...

We estimate the dynamics of a speculative bubble subject to surviving and collapsing regime together with dividends returns in tractable state space specification present-value model. To this new high-dimensional model, we develop an efficient Markov chain Monte Carlo sampler simulate from joint posterior distribution. find that real-world stock price bubbles show significant Markov-switching s...

In this paper we test for the existence of asset price bubbles in Latin America in the 19802001 period, focusing mainly on stock prices. Based on unit root and cointegration tests we cannot reject the hypothesis of bubbles. We arrive at the same conclusion using Froot and Obstfeld’s intrinsic bubbles model. We identify periods of significant stock price overvaluation to examine empirical regula...

Given the financial and economic damage that can be caused by collapse of an asset price bubble, it is critical importance to rapidly detect onset a crash once bubble has been identified. We develop real-time monitoring procedure for detecting episode in time series. adopt autoregressive framework, with regimes modelled explosive stationary dynamics, respectively. The first stage our approach m...

There is a little doubt in public mind that the dot-com boom on Nasdaq in the end of the 90s represented a stock market bubble. Indeed, major violations of rationality were observed. For instance, some dot-coms, which terminated their business still held positive market value. Market cap of dot-coms, which were parts of established companies sometimes exceeded market caps of their corporate par...

We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [Lux and Sornette, 1999] that the distribution of returns is a power law with exponent less than 1, in contradiction with empirical data. Our model predicts that, the higher is the market remuneration above the discount rate, the thinner is the tail of price returns but the larger ...