A bayesian dynamic stochastic general equilibrium model of stock market bubbles and business cycles
Date
2015-11
DOI
Authors
Miao, Jianjun
Wang, Pengfei
Xu, Zhiwei
Version
Published version
OA Version
Citation
J. Miao, P. Wang, Z. Xu. 2015. "A Bayesian dynamic stochastic general equilibrium model of stock market bubbles and business cycles" Quantitative Economics, Volume 6, Issue 3, pp.599-635. https://doi.org/10.3982/qe505
Abstract
We present an estimated DSGE model of stock market bubbles and business cycles using Bayesian methods. Bubbles emerge through a positive feedback loop mechanism supported by self-fulfilling beliefs. We identify a sentiment shock which drives the movements of bubbles and is transmitted to the real economy through endogenous credit constraints. This shock explains more than 96 percent of the stock market volatility and about 25 to 45 percent of the variations in investment and output. It generates the comovements between stock prices and macroeconomic quantities and is the dominant force in driving the internet bubbles and the Great Recession.
Description
License
Copyright © 2015 Jianjun Miao, Pengfei Wang, and Zhiwei Xu. Licensed under the Creative Commons Attribution-NonCommercial License 3.0. Available at http://www.qeconomics.org.