Bubbly liquidity

Emmanuel Farhi*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    109 Scopus citations

    Abstract

    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
    Volume79
    Issue number2
    DOIs
    StatePublished - Apr 1 2012

    Keywords

    • Bubbles
    • Liquidity

    ASJC Scopus subject areas

    • Economics and Econometrics

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