43 Pages Posted: 28 Mar 2011 Last revised: 3 Feb 2013
Date Written: December 13, 2011
Why do asset price bubbles continue to appear in various markets? What types of events give rise to bubbles and why do arbitrage forces fail to quickly burst them? Do bubbles have real economic consequences and should policy makers do more to prevent them? This paper provides an overview of recent literature on bubbles, with significant attention given to behavioral models and rational models with frictions. The latest U.S. housing bubble is described in the context of this literature.
Keywords: Bubbles, Limits to Arbitrage, Financial Crisis
JEL Classification: G00, G01, G10
Suggested Citation: Suggested Citation