The purpose of the present paper is to analyse a simple bubble model suggested by Blanchard and Watson. The model is defined by y(t) =s(t)ρy(t-1) ε(t), t=1,…,n, where s(t) is an i.i.d. binary variable with p=P(s(t)=1), independent of ε(t) i.i.d. with mean zero and finite variance. We take...