title: On the Existence and Prevention of Speculative Bubbles 
creator: Enders, Zeno 
creator: Hakenes, Hendrik Hakenes
subject: 330
subject: 330 Economics
description: We develop a parsimonious model of bubbles based on the assumption of imprecisely known market depth. In a speculative bubble, traders drive the price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. We provide a general condition for the possibility of bubbles depending on the risk-free rate, uncertainty about market depth, and traders’ degree of leverage. This allows us to discuss several policy measures. Bubbles always reduce aggregate welfare. Among others, certain monetary policy rules, minimum leverage ratios, and a correctly implemented Tobin tax can prevent their occurrence. Implemented incorrectly, however, some of these measures backfire and facilitate bubbles.
date: 2014-06
type: Working paper
type: info:eu-repo/semantics/workingPaper
type: NonPeerReviewed
format: application/pdf
identifier: https://archiv.ub.uni-heidelberg.de/volltextserverhttps://archiv.ub.uni-heidelberg.de/volltextserver/17056/1/Enders_Hakenes_2014_dp567.pdf
identifier: DOI:10.11588/heidok.00017056
identifier: urn:nbn:de:bsz:16-heidok-170568
identifier:   Enders, Zeno  ; Hakenes, Hendrik Hakenes  (2014) On the Existence and Prevention of Speculative Bubbles.  [Working paper]     
relation: https://archiv.ub.uni-heidelberg.de/volltextserver/17056/
rights: info:eu-repo/semantics/openAccess
rights: http://archiv.ub.uni-heidelberg.de/volltextserver/help/license_urhg.html
language: eng