Rational Economic Bubble: Demand And Supply Analysis

The basic idea of this paper is to develop what Tirole has left in his famousrational bubble model(Tirole,1985).When studying Blanchard and Fischer(1989)'Sfamous macro textbook,I have discovered that Tirole'S model was heavily introducedin Chapter Five"Bubble",and the idea was powerful,provincing and influential,withunderstandable technique requirements. Tirole(1985)is the classic paper of rational bubble literatures. Under theframework of Diamond'S overlapping generations model,Tirole concluded that whenthe economy iS in the condition 0f Dianmond'S economic inefficency(that iS to say.rSome conclutions are obtained,the main of which are as followingThe precondition of the existence of bubble is the dynamic inefficiency ofDianmond'S economy.The modified economic dynamic efficiency condition is rss ≡ f ′( ss) = εn?σ 1 The change rate of bubble supply δ is imited by t+1 k t+1 1+ σ pthe condition of the existence of steady state bubbles.The value of the bubble percapita changes in the same direction with the change of real interest rates and thechanging rate of the bubble supply,and changes in the opposite direction with theexisting propobility of the bubble in the next period and the changing rate ofpopulation growth.In the state of equilibrium,undeterministic bubbles should becompensated with risk premium,the scale of which is1( -1) depending on the robility of the existence of the bubble in the next period.Thepsupply and demand f bubbles also affect such important economic variables asinvestment,consumption and welfare Our model has some implications for the sale of state—owned stocks in China'Ssecurities market and the development of the real estate market nationwide.Forexample,when large quantities of state—owned stocked are to be sold with the currentmarket prices,the stock market will leave the equilibrium path and move to theDiamond'S steady state,which means stock price burst.The rate of land leasing isan important element of affecting housing prices.The structure of this paper is as follows:Chpater one"Introduction''starts with the importance of the bubble analysis.introduces the history of China'S and developed coutries'real estate and stock marketbubbles,then mentions the theoretic links and innovations,and at last introduces thestructure and main conclusions of this paper Chapter Two"Survey of theoretic thinking evolution"introduces the theoreticthinking evolution from the viewpoints of the analysis of bubble,nonmonetary bubbleliteratures,monetary bubble literatures and irrational bubble literaturesChapter Three"Survey of techniques of rational bubbles"introduces Some...