The Macroeconomics of Rational Bubbles: A User’s Guide

• Authors: Jaume Ventura and Alberto Martin.
• BSE Working Paper: 112159 | September 17
• Keywords: Business cycles , Bubbles , economic growth , pyramid schemes , credit , …nancial frictions
• JEL codes: E32, E44, O40
• Business cycles
• Bubbles
• economic growth
• pyramid schemes
• credit
• …nancial frictions

This paper provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models, and illustrates how they can be used to account for important macroeconomic phenomena. It also discusses the welfare implications of rational bubbles and the role of policy in managing them. Finally, it provides a detailed review of the literature.