eprintid: 17056
rev_number: 16
eprint_status: archive
userid: 2744
dir: disk0/00/01/70/56
datestamp: 2014-06-18 11:49:47
lastmod: 2015-04-22 04:52:25
status_changed: 2014-06-18 11:49:47
type: workingPaper
metadata_visibility: show
creators_name: Enders, Zeno 
creators_name: Hakenes, Hendrik Hakenes
title: On the Existence and Prevention of Speculative Bubbles 
subjects: 330
divisions: 181000
keywords: Bubbles, Rational Expectations, Market Depth, Liquidity, Financial Crises, Leveraged Investment, Bonuses, Capital Structure.
abstract: 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
id_scheme: DOI
id_number: 10.11588/heidok.00017056
schriftenreihe_cluster_id: sr-3
schriftenreihe_order: 0567
ppn_swb: 1658293584
own_urn: urn:nbn:de:bsz:16-heidok-170568
language: eng
bibsort: ENDERSZENOONTHEEXIST201406
full_text_status: public
series: Discussion Paper Series, University of Heidelberg, Department of Economics
volume: 0567
place_of_pub: Heidelberg
pages: 40
citation:   Enders, Zeno  ; Hakenes, Hendrik Hakenes  (2014) On the Existence and Prevention of Speculative Bubbles.  [Working paper]     
document_url: https://archiv.ub.uni-heidelberg.de/volltextserver/17056/1/Enders_Hakenes_2014_dp567.pdf