Economic Theory and Asset Bubbles

16 Pages Posted: 11 Sep 2007

See all articles by Gadi Barlevy

Gadi Barlevy

Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics


The author summarizes what economic theory tells us about when asset price bubbles can occur and what the welfare implications are from bursting them. In some cases, bursting a bubble may make society worse off by exacerbating the market distortions that give rise to the bubble in the first place.

Keywords: asset price bubbles, General Financial Markets,

Suggested Citation

Barlevy, Gadi, Economic Theory and Asset Bubbles. Economic Perspectives, Vol. 31, No. 3, 2007. Available at SSRN:

Gadi Barlevy (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

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