Lecture of Zheng Jie(THU), on April, 18th

Topic: The Robustness of Rational Bubbles in a Finite Horizon Model

Time：Thu,15：30-17：00, April, 18th

Venue：Room 1120, Boxue

Abstract: Many economic models of rational bubbles are not very robust to perturbations. The existence of bubbles in these models requires strong conditions to be satisfied. We first study the bubble examples in Zheng (2011) and show that those bubbles are robust to both strongly symmetric perturbations in beliefs and very symmetric perturbations in dividends, but not robust to general perturbations. Then we construct a new three-period two-agent robust bubble example where small variations in parameters do not eliminate the bubble equilibria. The idea is that assuming continuum of states can lead to a robust bubble equilibrium where each bad type of the seller pools with some good type of the seller. This provides a new answer to the question: How robust can rational bubbles be in a finite horizon model?