Economics Seminar (2020-05)

Topic: Rational Bubbles and Middlemen

Speaker: Makoto Watanabe，Vrije Universit Amsterdam

Time: May 12th, Tuesday. 14:30p.m. - 16:00p.m.

Location: Microsoft Teams Online Conference Room

Abstract:

This paper develops a nite-period model of rational bubbles where trade of an asset takes place through a chain of middlemen. We show that there exists a unique equilibrium, and a bubble can occur due to information frictions in bilateral and decentralized markets. Under reasonable assumptions, the equilibrium price is increasing and accelerating during bubbles although the fundamental value is constant over time. Bubbles may be detrimental to the economy, but any announcement from the central bank has no effect on welfare. Further, middlemen can be the source of financial fragility.

Introduction:

Makoto Watanabe (PhD University of Essex) is an associate professor of economics at the Department of Economics at VU Amsterdam and a research fellow of the Tinbergen Institute and CESifo. Previously, he worked at Universidad Carlos III de Madrid in Spain. He received a VIDI grant from NWO since 2012 and held a visiting position at New York University.

Your participation is warmly welcomed.