1997 Articles

Rational Asset Pricing Bubbles

Santos, Manuel S.; Woodford, Michael

This paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework. Our main results are concerned with nonexistence of asset pricing bubbles in those economies. These results imply that the conditions under which bubbles are possible -including some well-known examples of monetary equilibria- are relatively fragile.