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Arguing that in the real world relatively optimistic inexperienced investors are prey for relatively pessimistic veteran traders, we formalize this intuitive conjecture as a proven proposition in a simple model. This agreement to disagree leads to a perpetual bubble, in which more experienced,...
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We use a Diamond/Dybvig-based model with two banks operating in separate regions connected by a common asset market in which banks and sophisticated depositors invest. We study the effect of a potential run (crisis) and subsequent fire sales on the asset price in both the crisis and no-crisis...
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There has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets. Standard … unit root and cointegration tests are criticized for their low power to detect rational bubbles that periodically collapse …. This paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles. Our …
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