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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

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1935-1690
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Rational bubbles in a monetary economy

Ge Zhou
  • Corresponding author
  • College of Economics and Academy of Financial Research, Zhejiang University, Hangzhou, China
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
Published Online: 2017-09-04 | DOI: https://doi.org/10.1515/bejm-2016-0242

Abstract

This study explores rational bubbles in a monetary economy using an endogenous growth model with status seeking. Rational bubbles may arise when the money growth rate is higher than some threshold level. In a bubbly economy, a higher money growth rate leads to a larger bubble size, while the monetary policy is super-neutral. However, in a bubbleless economy, the monetary policy is non-neutral. Based on a comparative analysis of the calibrated model, I argue that an optimal monetary policy that maximizes the social welfare of a bubbleless economy may trigger bubbles and hurt the economy.

Keywords: monetary policy; rational bubbles; status seeking

JEL Classification: E52; G12; O11

References

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About the article

Published Online: 2017-09-04


Citation Information: The B.E. Journal of Macroeconomics, Volume 18, Issue 1, 20160242, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2016-0242.

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