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Rational asset pricing bubbles.

By Manuel S. Santos and Michael Woodford

Abstract

This paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework. Our main results are concerned with non-existence of asset pricing bubbles in those economies. These results imply that the conditions under which bubbles are possible inc1uding sorne well-known examples of monetary equilibria-are relatively fragile.Asset pricing bubbles; Rational expectations; Sequentially incomplete markets; Money;

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