Caballero, Ricardo J.; Farhi, Emmanuel; Hammour, Mohamad L. - In: American Economic Review 96 (2006) 4, pp. 1159-1192
We propose a framework for understanding episodes of vigorous economic expansion and extreme asset valuations. We interpret this phenomenon as a highvaluation equilibrium with a low cost of capital based on optimism about future funding. The key ingredient for such equilibrium is feedback from...