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'Irrational exuberance' and capital flows for the us new economy : A simple global model
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Miller, Marcus, Castren, Olli and Zhang, Lei (2007) 'Irrational exuberance' and capital flows for the us new economy : A simple global model. International Journal of Finance & Economics, Volume 12 (Number 1). pp. 89-105. doi:10.1002/ijfe.307 ISSN 1076-9307.
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Official URL: http://dx.doi.org/10.1002/ijfe.307
Abstract
In a stylized and analytically tractable model of the global economy, we first calculate the Pareto improvement when a country experiencing a favourable supply side shock consumes more against expected future Output and spreads the risk by selling shares. With capital inflows to finance the 'New Economy' significantly exceeding the current account deficit, we then show that selling shares globally at inflated prices-due to 'irrational exuberance' and/or distorted corporate incentives-can generate significant international transfers when the asset bubble bursts. Our analysis complements econometric studies showing how much the European economy was affected when the US asset boom ended.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HG Finance | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | International Journal of Finance & Economics | ||||
Publisher: | John Wiley & Sons Ltd. | ||||
ISSN: | 1076-9307 | ||||
Official Date: | January 2007 | ||||
Dates: |
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Volume: | Volume 12 | ||||
Number: | Number 1 | ||||
Number of Pages: | 17 | ||||
Page Range: | pp. 89-105 | ||||
DOI: | 10.1002/ijfe.307 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
Data sourced from Thomson Reuters' Web of Knowledge
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