Boom, Bust, and Bubbles: A Mengerian Account
18 Pages Posted: 10 Jun 2015 Last revised: 3 Oct 2017
Date Written: October 2, 2017
This paper offers a sketch of an account of asset bubbles based in the dynamics of the asset's moneyness, or liquidity. This approach has the virtue of subsuming a number of stylized facts which have been to this point the domain of competing approaches to business cycle theory. By using a broader and theoretically richer conception of money than the conventional simple-sum aggregates, the account 1) attributes depression to an excess demand for money, as in the traditional monetarist story, 2) explains how this can be true despite central banks' scrupulousness in avoiding falls in the money stock without falling back on an exogenous “velocity shock”, and 3) points to systematic capital misallocation over the course of the business cycle along different lines than those adduced by traditional theories of capital malinvestment.
Keywords: Business cycles, Asset bubbles, Money, Capital, Depression, Recession, Credit
JEL Classification: E32, G1, E51
Suggested Citation: Suggested Citation