TY  - GEN
CY  - Heidelberg
T3  - Discussion Paper Series, University of Heidelberg, Department of Economics
AV  - public
ID  - heidok17056
KW  - Bubbles
KW  -  Rational Expectations
KW  -  Market Depth
KW  -  Liquidity
KW  -  Financial Crises
KW  -  Leveraged Investment
KW  -  Bonuses
KW  -  Capital Structure.
Y1  - 2014/06//
TI  - On the Existence and Prevention of Speculative Bubbles 
N2  - 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 back?re and facilitate bubbles.
A1  - Enders, Zeno 
A1  - Hakenes, Hendrik Hakenes
EP  - 40
UR  - https://archiv.ub.uni-heidelberg.de/volltextserver/17056/
ER  -