Re: bubbles and panics, or rational responses?

[Mike Metz <mtm@xxxxxxxxxxxxxxxxx>]

Basil Moore,
Question on rational bubbles, rational expectations and growth.
If what you have in mind is a representative agent model, what is your theory
behind the supposition that an asset could have a positive growth rate in
the long run?

That is, does discounted present value over an *infinite* horizon really
mean anything to asset markets.

Mike Metz

On Thu, 9 Oct 1997, Basil Moore wrote:

>   James Olsen
>
>         The claim is that asset values are the discounted present value of
> the future income stream to which the owner is entitled. If the income
> stream is a perpetuity, and if it is expected to grow at a rate in excess of
> the rate at which the asset is discounted, the discounted present value of
> the asset becomes infinite.
>
>         It does not of course follow that the price will be infinite.
But it
> is the cause of a "rational bubble.
>
>
>	Basil Moore