Working Paper: NBER ID: w24234
Authors: Alberto Martin; Jaume Ventura
Abstract: This paper provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models, and illustrates how they can be used to account for important macroeconomic phenomena. It also discusses the welfare implications of rational bubbles and the role of policy in managing them. Finally, it provides a detailed review of the literature.
Keywords: rational bubbles; macroeconomics; financial globalization
JEL Codes: E32; E44; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rational bubbles (E32) | fluctuations in capital flows (F32) |
| rational bubbles (E32) | investment (G31) |
| rational bubbles (E32) | output (C67) |
| collapse of bubbles (E32) | sharp reversals in capital flows (F32) |
| collapse of bubbles (E32) | economic downturns (F44) |
| bubbles (E32) | economic welfare (D69) |
| interaction between financial globalization and bubbles (F65) | economic volatility (E32) |