The boy who cried bubble: Public warnings against riding bubbles

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    Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This article examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is late.

    Original languageEnglish
    Pages (from-to)1137-1152
    Number of pages16
    JournalEconomic Inquiry
    Issue number3
    Publication statusPublished - 2014


    ASJC Scopus subject areas

    • Economics and Econometrics
    • Business, Management and Accounting(all)

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