Abstract
This paper develops a finite-period model of rational bubbles where the trade of an asset takes place through a chain of middlemen. We show that there exists a unique equilibrium, and a bubble can occur due to higher-order uncertainty. Under reasonable assumptions, the equilibrium price is increasing and accelerating during bubbles although the fundamental value is constant over time. Bubbles may be detrimental to the economy; however, bubble-bursting policies affect agents' beliefs and it turns out that they have no effect on welfare. We also demonstrate that the possibility that middlemen obtain more information leads to larger bubbles.
Download paper (PDF, 304.5 KB)
About the presenter's visit
Dr Makoto Watanabe will be visiting the School of Economics on Friday 18th October 2019. While here he will be using room 520A Colin Clark Building. If you would like to meet with him or have lunch or dinner with him please contact Dr Satoshi Tanaka who will be his host while at The University of Queensland. Dr Tanaka can be contacted on s.tanaka@uq.edu.au.
About School Seminar Series
The School of Economics General Seminar Series is held on Fridays. These are in-person and presented by a range of guest researchers from around Australia and internationally.
Venue
The University of Queensland
St Lucia campus