TY  - JOUR
AU  - Diba,Behzad T.
AU  - Grossman,Herschel I.
TI  - Rational Inflationary Bubbles
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2004
PY  - 1988
Y2  - September 1988
UR  - http://www.nber.org/papers/w2004
L1  - http://www.nber.org/papers/w2004.pdf
N1  - Author contact info:
Behzad Diba
Department of Economics
Georgetown University
Washington, DC  20057
Tel: 202-687-5682
Fax: 202-687-6102
E-Mail: dibab@georgetown.edu

Herschel Grossman
Department of Economics
Box B
Brown University
Providence, RI  02912
Tel: 401/863-2606
Fax: 401/863-1970
AB  - This paper analyzes the possible inception of rational inflationary bubbles under the assumption that the empirically relevant environment precludes the existence of rational deflationary bubbles. The analysis shows that if a rational inflationary bubble exists, then it must have started on the date of initial issuance of the fiat money.  Moreover, the existence of a rational inflationary bubble would imply that, prior to the initial issuance of the fiat money, agents who anticipated its introduction expected a rational inflationary bubble to occur. The analysis also shows that once a rational inflationary bubble bursts it cannot restart. The analysis, however, does not preclude the existence of a rational inflationary bubble that shrinks periodically, but never bursts. The limitations on the inception and existence of rational inflationary bubbles also apply to rational exchange-rate bubbles.
ER  -