Related papers: The Illusion of the Perpetual Money Machine
The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led…
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
This review is a partial synthesis of the book ``Why stock market crash'' (Princeton University Press, January 2003), which presents a general theory of financial crashes and of stock market instabilities that his co-workers and the author…
The international financial system is currently not yet prepared to face a foreseeable crisis mainly motivated by the dichotomy between the real economy and the virtual economy. Skepticism is widespread even when it comes to investments in…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
We present a self-consistent model for explosive financial bubbles, which combines a mean-reverting volatility process and a stochastic conditional return which reflects nonlinear positive feedbacks and continuous updates of the investors'…
For those concerned with the long-term value of their accounts, it can be a challenge to plan in the present for inflation-adjusted economic growth over coming decades. Here, I argue that there exists an economic constant that carries…
This essay suggests that a proper assessment of the presently unfolding financial crisis, and its cure, requires going back at least to the late 1990s, accounting for the cumulative effect of the ITC, real-estate and financial derivative…
This article continues our analysis of the gold price dynamics that was published in December 2010 (abs/1012.4118) and forecasted the possibility of the "burst of the gold bubble" in April - June 2011. Our recent analysis suggests the…
The substantial turmoil created by both 2000 dot-com crash and 2008 subprime crisis has fueled the belief that the two classical paradigms of economics, which are the invisible hand and the rational agent, are not appropriate to describe…
Previous analyses of a large ensemble of stock markets have demonstrated that a log-periodic power law (LPPL) behavior of the prices constitutes a qualifying signature of speculative bubbles that often land with a crash. We detect such a…
We consider the relationship between economic activity and intervention, including monetary and fiscal policy, using a universal dynamic framework. Central bank policies are designed for growth without excess inflation. However,…
We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices…
We present a macro-finance model with innovation and knowledge spillover. Skilled agents engage in R&D activities (establish firms) or work in the knowledge-intensive sector. Unskilled agents work in the traditional sector. Knowledge…
Monetary inflation is a sustained increase in the money supply than can result in price inflation, which is a rise in the general level of prices of goods and services. The objectives of this paper were to develop economic models to (1)…
Empirical business cycle studies using cross-country data usually cannot achieve causal relationships while within-country studies mostly focus on the bust period. We provide the first causal investigation into the boom period of the…
The subject of this study is inflation, a problem that has plagued America and the world over the last several decades. Despite a rich trove of scholarly studies and a wide range of tools developed to deal with inflation, we are nowhere…
I sketch a program for a microeconomic theory of the main component of the business cycle as a recurring disequilibrium, driven by incompleteness of the financial market and by information asymmetries between borrowers and lenders. This…
Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes…