Library Header Image
LSE Research Online LSE Library Services

Deflationary bubbles

Buiter, Willem H. and Sibert, Anne C. (2007) Deflationary bubbles. Macroeconomic Dynamics, 11 (4). pp. 431-454. ISSN 1365-1005

Download (267kB) | Preview
Identification Number: 10.1017/S1365100506060147


In an attempt to clean up an unruly literature, we specify the necessary and sufficient conditions for household optimality in a model where money is the only …financial asset and provide the relevant proofs. We use our results to analyse when de‡flationary bubbles can and cannot exist. Our …findings are in contrast to the results in several prominent contributions to the literature. We argue for particular speci…cations of the no-Ponzi-game restrictions on the household’s and government’s intertemporal budget constraints in a model with money and bonds. Using the restriction on the household we derive the necessary and sufficient conditions for household optimality. The resulting equilibrium terminal conditions are then used to demonstrate that the existence of bonds does not affect when de‡flationary bubbles can and cannot occur. This result differs from that in other recent works.

Item Type: Article
Official URL:
Additional Information: © 2007 Cambridge University Press
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > European Institute
Collections > Economists Online
Date Deposited: 12 Feb 2008
Last Modified: 01 Oct 2010 08:49

Actions (login required)

View Item View Item


Downloads per month over past year

View more statistics