Bubbly liquidity

Emmanuel Farhi*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    127 Scopus citations


    This paper analyses the possibility and the consequences of rational bubbles in a dynamic economy where financially constrained firms demand and supply liquidity. Bubbles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of corporate income; they crowd investment in (out) when liquidity is abundant (scarce). We analyse extensions with firm heterogeneity and stochastic bubbles.

    Original languageEnglish (US)
    Pages (from-to)678-706
    Number of pages29
    JournalReview of Economic Studies
    Issue number2
    StatePublished - Apr 1 2012


    • Bubbles
    • Liquidity

    ASJC Scopus subject areas

    • Economics and Econometrics


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