We provide an infinite-horizon model of a production economy with bubbles, in which firms meet stochastic investment opportunties and face credit constraints. Capital is not only an input for production, but also serves as collateral. We show that bubbles on this reproducible asset may arise,...

We present an estimated DSGE model of stock market bubbles and business cycles using Bayesian methods. Bubbles emerge through a positive feedback loop mechanism supported by self-fulfilling beliefs. We identify a sentiment shock which drives the movements of bubbles and is transmitted to the...

This paper extends Woodford's (2010) approach to the robustly monetary policy to a general linear quadratic framwork. We provide algorithms to solve for a time-invariant linear robustly optimal policy from a timeless perspective and for a time-invariant linear Markov perfect equilibrium under...