Economic growth with bubbles

We develop a stylized model of economic growth with bubbles. In this model, changes in investorsentiment lead to the appearance and collapse of macroeconomic bubbles or pyramid schemes.We show how these bubbles mitigate the effects of financial frictions. During bubbly episodes,unproductive investors demand bubbles while productive investors supply them. These transfersof resources improve the efficiency at which the economy operates, expanding consumption, thecapital stock and output. When bubbly episodes end, these transfers stop and consumption, thecapital stock and output contract. We characterize the stochastic equilibria of the model and arguethat they provide a natural way of introducing bubble shocks into business cycle models.

Theoretical notes on bubbles and the current crisis

We explore a view of the crisis as a shock to investor sentiment that led to the collapse of abubble or pyramid scheme in financial markets. We embed this view in a standard model of thefinancial accelerator and explore its empirical and policy implications. In particular, we show howthe model can account for: (i) a gradual and protracted expansionary phase followed by a suddenand sharp recession; (ii) the connection (or lack of connection!) between financial and real economicactivity and; (iii) a fast and strong transmission of shocks across countries. We also use the modelto explore the role of fiscal policy.

Valuation bubbles and sequential bubbles

Price bubbles in an Arrow-Debreu valuation equilibrium in infinite-timeeconomy are a manifestation of lack of countable additivity of valuationof assets. In contrast, known examples of price bubbles in sequentialequilibrium in infinite time cannot be attributed to the lack of countableadditivity of valuation. In this paper we develop a theory of valuation ofassets in sequential markets (with no uncertainty) and study the nature ofprice bubbles in light of this theory. We consider an operator, calledpayoff pricing functional, that maps a sequence of payoffs to the minimumcost of an asset holding strategy that generates it. We show that thepayoff pricing functional is linear and countably additive on the set ofpositive payoffs if and only if there is no Ponzi scheme, and providedthat there is no restriction on long positions in the assets. In the knownexamples of equilibrium price bubbles in sequential markets valuation islinear and countably additive. The presence of a price bubble indicatesthat the asset's dividends can be purchased in sequential markers at acost lower than the asset's price. We also present examples of equilibriumprice bubbles in which valuation is nonlinear but not countably additive.

Bubbles and capital flows

This paper presents a stylized model of international trade and asset price bubbles. Its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world. These bubbles absorb local savings, eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries. Through this channel, bubbles act as a substitute for international capital flows, improving the international allocation of investment and reducing rate-of-return differentials across countries. This view of asset price bubbles could eventually provide a simple account of some real world phenomenae that have been difficult to model before, such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries.

Monetary policy and rational asset price bubbles

I examine the impact of alternative monetary policy rules on arational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interestrates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. Theoptimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper'smain findings call into question the theoretical foundations of the casefor "leaning against the wind" monetary policies.

Electromagnetic radiation initiated by hadronic jets from microquasars in the ISM

Microquasars are potential candidates to produce a non-negligible fraction of the observed galactic cosmic rays. The protons accelerated at the jet termination shock interact with the interstellar medium and may produce detectable fluxes of extended emission at different energy bands: high-energy and very high-energy gamma-rays produced by neutral pion-decay, synchrotron and bremsstrahlung emission in a wide energy range generated by the secondary electrons produced by charged pion-decay. We discuss the association between this scenario and some of the unidentified EGRET sources in the galactic plane.

Quantum fluctuations on domain walls, strings, and vacuum bubbles

We develop a covariant quantum theory of fluctuations on vacuum domain walls and strings. The fluctuations are described by a scalar field defined on the classical world sheet of the defects. We consider the following cases: straight strings and planar walls in flat space, true vacuum bubbles nucleating in false vacuum, and strings and walls nucleating during inflation. The quantum state for the perturbations is constructed so that it respects the original symmetries of the classical solution. In particular, for the case of vacuum bubbles and nucleating strings and walls, the geometry of the world sheet is that of a lower-dimensional de Sitter space, and the problem reduces to the quantization of a scalar field of tachyonic mass in de Sitter space. In all cases, the root-mean-squared fluctuation is evaluated in detail, and the physical implications are briefly discussed.

Bubbles in Kaluza-Klein theories with spacelike or timelike internal dimensions

region to the other. We also present a C-type solution that describes neutral bubbles in uniform acceleration, and we use it to construct an instanton that mediates the breaking of a cosmic string by forming bubbles at its ends. The rate for this process is also calculated. Finally, we argue that a similar solution can be constructed for magnetic bubbles, and that it can be used to describe a semiclassical instability of the two-timing vacuum against production of massless monopole pairs.

Media, investors and bubbles

We analysed the specific case of how information in the financial press influences economic bubbles. We found considerable flaws in the information market due to several factors: demand, the predominance of what are termed “irrational investors” (herding), and supply, which has the problem that the sources of information are biasedand feeds. A financial bubble is a deviation between real value of a financial asset and its persistent market price in time, which also has a speculative origin fed back by the illusion of the owners of these financial values, who will take benefits because of the future prices, which must be higher than the previous ones. The economical information in the media is submitting three problems. First of all, it is information generated by companies. In second place, the information circuit is fed back. A problem of informative independence becomes created, particularly serious in the case of the banks, which are very were as creditors. And in a third place, some informative biases are manifested for the companies of regulated sectors which are starring the economical information in the media.

The effects of monetary policy on stock market bubbles: Some evidence

We estimate the response of stock prices to exogenous monetary policy shocks usinga vector-autoregressive model with time-varying parameters. Our evidence points toprotracted episodes in which, after a a short-run decline, stock prices increase persistently in response to an exogenous tightening of monetary policy. That responseis clearly at odds with the "conventional" view on the effects of monetary policy onbubbles, as well as with the predictions of bubbleless models. We also argue that it isunlikely that such evidence be accounted for by an endogenous response of the equitypremium to the monetary policy shocks.

Thermodynamic stability of nanosized multicomponent bubbles/droplets: The square gradient theory and the capillary approach

Formation of nanosized droplets/bubbles from a metastable bulk phase is connected to many unresolved scientific questions. We analyze the properties and stability of multicomponent droplets and bubbles in the canonical ensemble, and compare with single-component systems. The bubbles/droplets are described on the mesoscopic level by square gradient theory. Furthermore, we compare the results to a capillary model which gives a macroscopic description. Remarkably, the solutions of the square gradient model, representing bubbles and droplets, are accurately reproduced by the capillary model except in the vicinity of the spinodals. The solutions of the square gradient model form closed loops, which shows the inherent symmetry and connected nature of bubbles and droplets. A thermodynamic stability analysis is carried out, where the second variation of the square gradient description is compared to the eigenvalues of the Hessian matrix in the capillary description. The analysis shows that it is impossible to stabilize arbitrarily small bubbles or droplets in closed systems and gives insight into metastable regions close to the minimum bubble/droplet radii. Despite the large difference in complexity, the square gradient and the capillary model predict the same finite threshold sizes and very similar stability limits for bubbles and droplets, both for single-component and two-component systems.

Non-thermal emission from microquasar/ISM interaction

Context. The interaction of microquasar jets with their environment can produce non-thermal radiation as in the case of extragalactic outflows impacting on their surroundings. Significant observational evidence of jet/medium interaction in galactic microquasars has been collected in the past few years, although little theoretical work has been done regarding the resulting non-thermal emission. Aims. In this work, we investigate the non-thermal emission produced in the interaction between microquasar jets and their environment, and the physical conditions for its production. Methods. We developed an analytical model based on those successfully applied to extragalactic sources. The jet is taken to be a supersonic and mildly relativistic hydrodynamical outflow. We focus on the jet/shocked medium structure in its adiabatic phase, and assume that it grows in a self-similar way. We calculate the fluxes and spectra of the radiation produced via synchrotron, inverse Compton, and relativistic bremsstrahlung processes by electrons accelerated in strong shocks. A hydrodynamical simulation is also performed to investigate further the jet interaction with the environment and check the physical parameters used in the analytical model. Results. For reasonable values of the magnetic field, and using typical values of the external matter density, the non-thermal particles could produce significant amounts of radiation at different wavelengths, although they do not cool primarily radiatively, but by adiabatic losses. The physical conditions of the analytical jet/medium interaction model are consistent with those found in the hydrodynamical simulation. Conclusions. Microquasar jet termination regions could be detectable at radio wavelengths for current instruments sensitive to ~arcminute scales. At X-ray energies, the expected luminosities are moderate, although the emitter is more compact than the radio one. The source may be detectable by XMM-Newton or Chandra, with 1-10 arcsec of angular resolution. The radiation at gamma-ray energies may be within the detection limits of the next generation of satellite and ground-based instruments.

Interlinkages and forecasting made possible by the use of the DECOIN analytical tool kit

This technical report is a document prepared as a deliverable [D4.3 Report of the Interlinkages and forecasting prototype tool] of a EU project – DECOIN Project No. 044428 - FP6-2005-SSP-5A. The text is divided into 4 sections: (1) this short introductory section explains the purpose of the report; (2) the second section provides a general discussion of a systemic problem found in existing quantitative analysis of sustainability. It addresses the epistemological implications of complexity, which entails the need of dealing with the existence of Multiple-Scales and non-equivalent narratives (multiple dimensions/attributes) to be used to define sustainability issues. There is an unavoidable tension between a “steady-state view” (= the perception of what is going on now – reflecting a PAST --& PRESENT view of the reality) versus an “evolutionary view” (= the unknown transformation that we have to expect in the process of becoming of the observed reality and in the observer – reflecting a PRESENT --& FUTURE view of the reality). The section ends by listing the implications of these points on the choice of integrated packages of sustainability indicators; (3) the third section illustrates the potentiality of the DECOIN toolkit for the study of sustainability trade-offs and linkages across indicators using quantitative examples taken from cases study of another EU project (SMILE). In particular, this section starts by addressing the existence of internal constraints to sustainability (economic versus social aspects). The narrative chosen for this discussion focuses on the dark side of ageing and immigration on the economic viability of social systems. Then the section continues by exploring external constraints to sustainability (economic development vs the environment). The narrative chosen for this discussion focuses on the dark side of current strategy of economic development based on externalization and the “bubbles-disease”; (4) the last section presents a critical appraisal of the quality of energy data found in energy statistics. It starts with a discussion of the general goal of statistical accounting. Then it introduces the concept of multipurpose grammars. The second part uses the experience made in the activities of the DECOIN project to answer the question: how useful are EUROSTAT energy statistics? The answer starts with an analysis of basic epistemological problems associated with accounting of energy. This discussion leads to the acknowledgment of an important epistemological problem: the unavoidable bifurcations in the mechanism of accounting needed to generate energy statistics. By using numerical example the text deals with the following issues: (i) the pitfalls of the actual system of accounting in energy statistics; (ii) a critical appraisal of the actual system of accounting in BP statistics; (iii) a critical appraisal of the actual system of accounting in Eurostat statistics. The section ends by proposing an innovative method to represent energy statistics which can result more useful for those willing develop sustainability indicators.