A review essay of Roman Frydman & Michael D. Goldberg's Beyond Mechanical Markets: Asset Price Swings, Risk, and the …

A review essay of Roman Frydman & Michael D. Goldberg’s Beyond Mechanical Markets: Asset Price Swings, Risk, and the …

general conditions for the possibility of bubbles depending on uncertainty about market size, traders' degree of leverage and …We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size … lend to traders with limited liability in a bubble is endogenous. Bubbles reduce welfare of future investors. We provide …

inevitable, by contemporary economic theory, yet its core tenets remain unchanged today. In response, the authors show how …-imperfect interpretations of the significance of economic fundamentals for future prices and risk. Because swings are at the heart of a dynamic …

welfare of future households. We provide general conditions for the possibility of bubbles depending on uncertainty about …We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size … decide whether to lend to traders with limited liability. Bubbles increase welfare of the initial asset holders, but reduce …

possibility of bubbles depending on the risk-free rate, uncertainty about market depth, and traders’ degree of leverage. This …We develop a parsimonious model of bubbles based on the assumption of imprecisely known market depth. In a speculative … allows us to discuss several policy measures. Bubbles always reduce aggregate welfare. Among others, certain monetary policy …

We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs … beliefs can thus account for speculative bubbles, without the need for irrational agents or limits to arbitrage. Many of the … shortcomings of REBs that make rational bubbles implausible can be overcome once we relax the ergodicity requirement. In particular …

We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs … beliefs can thus account for speculative bubbles, without the need for irrational agents or limits to arbitrage. Many of the … shortcomings of REBs that make rational bubbles implausible can be overcome once we relax the ergodicity requirement. In particular …

, abnormally high asset prices can be caused by financial bubbles. In this model, bubbles can emerge and deflate both in cycles or … rate. This can lead to new stable equilibria, but the emergence and bursting of bubbles cannot be prevented. …