Bubbly Liquidity
59 Pages Posted: 31 Jan 2011 Last revised: 9 Apr 2023
Date Written: January 2011
Abstract
This paper analyzes the possibility and the consequences of rational bubbles in a dy- namic economy where financially constrained firms demand and supply liquidity. Bub- bles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of corporate income; they crowd investment in (out) when liquidity is abundant (scarce). We analyze extensions with firm heterogeneity and sto- chastic bubbles.
Suggested Citation: Suggested Citation
Farhi, Emmanuel and Tirole, Jean, Bubbly Liquidity (January 2011). NBER Working Paper No. w16750, Available at SSRN: https://ssrn.com/abstract=1751448
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