Skip to main content
×
Home
    • Aa
    • Aa

DEFLATIONARY BUBBLES

  • WILLEM H. BUITER (a1) and ANNE C. SIBERT (a2)
Abstract

In an attempt to clean up an unruly literature, we specify the necessary and sufficient conditions for household optimality in a model where money is the only financial asset and provide the relevant proofs. We use our results to analyze when deflationary bubbles can and cannot exist. Our findings are in contrast to the results in several prominent contributions to the literature. We argue for particular specifications of the no-Ponzi-game restrictions on the representative household's and the government's intertemporal budget constraints in a model with money and bonds. Using the restriction on the household we derive the necessary and sufficient conditions for household optimality. The resulting equilibrium terminal conditions are then used to demonstrate that the existence of bonds does not affect when deflationary bubbles can and cannot occur. This result differs from that in other recent works.

Copyright
Corresponding author
Address correspondence to: Anne C. Sibert, School of Economics, Mathematics and Statistics, Birkbeck College, Malet Street, London WCIE 7HX, United Kingdom; e-mail: asibert@econ.bbk.ac.uk.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords:

Metrics

Altmetric attention score