, and positive‐feedback traders cause the formation of speculative bubbles. Our model also indicates that traders’ attitudes … frequent occurrence of bubbles. …

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