02294cam a22002417 4500001000600000003000500006005001700011008004100028100002000069245009700089260006600186490004100252500001000293520136300303530006101666538007201727538003601799700002601835710004201861830007601903856003701979856003602016w1059NBER20150728125936.0150728s1983 mau||||fs|||| 000 0 eng d1 aDiba, Behzad T.10aRational Asset Price Bubblesh[electronic resource] /cBehzad T. Diba, Herschel I. Grossman. aCambridge, Mass.bNational Bureau of Economic Researchc1983.1 aNBER working paper seriesvno. w1059 a1983.3 aThe solution to a linear model in which supply and/or demand depends on rational expectations of future prices can involve three parts, which we denote as the fundamental component, the deterministic bubble component, and the stochastic bubble component. This paper explores the properties of these solution components, emphasizing the distinction between deterministic bubbles and stochastic bubbles, for a model of inflation and for a model of the evolution of price and quantity in the market fora storable commodity, such as gold. The analysis focuses on stochastic bubbles as a possibility peculiarly associated with models that involve rational expectations. In both the inflation model and the gold model, although the analysis points to no compelling reason to rule out rational stochastic bubbles apriori, conventional behavioral assumptions imply that anyrational bubbles that arise, whether deterministic or stochastic,are explosive. The paper discusses problems of implementing econometric tests for the existence of rational bubbles, and, as an alternative to these tests, suggests "diagnostic checking" of the stationarity properties of time series. Although these diagnostic checks do not constitute definitive hypothesis testing, we conjecture they would provide strong evidence against rational bubbles outside the context of hyperinflation. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aGrossman, Herschel I.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w1059.4 uhttp://www.nber.org/papers/w105941uhttp://dx.doi.org/10.3386/w1059