Contagious Bubbles

活动时间:10月16日10:30 – 11:30

活动地点:Virtual Meeting through XYLink(小鱼易连)

活动演讲人: Feng DONG



Contagious Bubbles



Associate Professor, Tsinghua University


This paper proposes a framework to study contagious stock bubbles in a multi-sector production economy with heterogeneous investment technologies. Due to financial frictions, stock bubbles arise endogenously that help inject additional liquidity. Due to financial linkages, the existence of bubbles in different sectors may be interdependent. Theoretically, we characterize the entire set of bubbly equilibria, and provide the condition under which the burst of bubbles in one sector spikes bubbles in other sectors. Quantitatively, we show that due to an unexpected burst of bubbles, it can generate severe a recession only when the burst happens in a vital sector and transmits to the rest of the economy.