The Macroeconomics of Rational Bubbles: A User's Guide

Authors: Alberto Martín and Jaume Ventura

Annual Review of Economics, Vol. 10, 505-539, August, 2018

This review provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models and illustrates how they can be used to account for important macroeconomic phenomena. It also discusses the welfare implications of rational bubbles and the role of policy in managing them. Finally, it provides a detailed review of the literature.

This paper originally appeared as Barcelona GSE Working Paper 989