Rational Inflationary Bubbles / Behzad T. Diba, Herschel I. Grossman.

Format:

Book

Author/Creator:

Diba, Behzad T.

Contributor:

National Bureau of Economic Research.

Grossman, Herschel I.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2004.

NBER working paper series no. w2004

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Summary:

This paper analyzes the possible inception of rational inflationary bubbles under the assumption that the empirically relevant environment precludes the existence of rational deflationary bubbles. The analysis shows that if a rational inflationary bubble exists, then it must have started on the date of initial issuance of the fiat money. Moreover, the existence of a rational inflationary bubble would imply that, prior to the initial issuance of the fiat money, agents who anticipated its introduction expected a rational inflationary bubble to occur. The analysis also shows that once a rational inflationary bubble bursts it cannot restart. The analysis, however, does not preclude the existence of a rational inflationary bubble that shrinks periodically, but never bursts. The limitations on the inception and existence of rational inflationary bubbles also apply to rational exchange-rate bubbles.

Notes:

Print version record

August 1986.