Date of Original Version



Conference Proceeding

Abstract or Description

The subject of this conference is an esoteric issue in rational expectations, general equilibrium modeling. The issue arises because it is not possible to show that models of this kind converge to a unique, stationary equilibrium or dynamic equilibrium path. There are potentially multiple equilibria, and among them are some in which prices of assets or output do not converge to finite values. Prices can explode. A technical reason why a model may have bubble solutions is that there may not be an infinitely lived rational decision-maker who breaks the bubble.


Keynote address for the Federal Reserve Bank of Chicago - World Bank Conference on Asset Price Bubbles