What is Bubble Theory?

Bubble theory is an economic theory and an economic imbalance phenomenon, which can be defined as the non-stationary shift of a certain price level relative to the theoretical price (general equilibrium stable steady state price) determined by economic basic conditions.

Bubble theory

Bubble theory is an economic theory and an economic imbalance phenomenon, which can be defined as the non-stationary shift of a certain price level relative to the theoretical price (general equilibrium stable steady state price) determined by economic basic conditions.

Chinese name

Bubble theory

Foreign name

Bubble theory

Features

Economic imbalance

economist

C. Kindleberger

Country of Citizenship

United States

The term "bubble" is a vivid depiction of the rapid rise and decline of the economy after a period of time, and then a sharp decline, and finally burst like a soap bubble. However, the academic community's understanding of the meaning of "bubble" is divided.

C. Well-known American economist in 1978 Kindleberger believes:

"The term bubble state, casually speaking, is that one or a series of assets suddenly rises in price in a continuous process. The initial rise in prices will cause people to expect that prices will rise, and then attract new buyers- These people generally only want to make profits through buying and selling. As the price rises, it is often an expected reversal, followed by a sharp decline in prices, and finally

At present, academic circles mainly

for

If it is possible to measure the value of an asset or the content of a bubble in the economy, it will undoubtedly be of great significance to control the bubble and thus regulate the balanced operation of the economy. Therefore, the measurement of bubbles has naturally become another focus of scholars' attention.

At present, there are three main research ideas in academia. First, starting from the definition of the bubble, which is based on the basic value (or theoretical value) of the asset, and measuring the degree of the bubble by comparing the difference between the actual value and the theoretical value, it can be called the basic value measurement method; It is the basis of virtual capital. It measures bubbles by the degree to which virtual capital deviates from the value of physical capital. It is called the comparison method between virtual capital and physical capital. Speed method.

At present, the first idea that is seen in the literature is the basic value measurement method. Japanese scholar Yuki Noguchi (1989) studied the difference between the actual and theoretical land prices of office and residential land in central Tokyo, assuming that market participants have rational expectations, then when the asset market is balanced, that is, the rate of return on land and other assets When the market returns are equal, the market price of the land is equal to the basic value. This calculates the theoretical value of the land price and then compares it with the actual land price to measure the bubbles contained in the land assets. Fourth, the "White Book" issued by the Japan Planning Agency in 1995 adopted a return-to-return approach to the economic bubble. Assume that each economic variable in the current period is the predicted value of the corresponding economic variable in each future period. Based on this, the estimated value of the theoretical price is calculated, and then the so-called "interest rate adjusted PER" (Price / Earning Ratio) is calculated. Sequence, and combined economic background information to determine when asset prices have bubbled up. Nakao Hiroshi (1996) also used the income reduction method to examine the theoretical price of commercial land in Tokyo, that is, the theoretical price of real estate = pure income security asset return rate + risk compensation rate-expected rent increase rate).

It can be seen from the above that although these Japanese scholars have different models for calculating the theoretical value of assets, they are all based on the assumption that the theoretical value of assets depends only on the current period and future returns of the asset Information. Dr. Huang Mingkun (2002) of Nankai University believes that the basic value of virtual assets such as stocks depends on the rate of return of capital under the optimal equilibrium and stable state of physical capital, and uses this method to make an empirical analysis of the Japanese economic bubble in the 1980s and 1990s . First, he used the Ramsey Model to find the optimal marginal rate of return of capital in the steady state as the base value of the asset. Then he calculated the respective bubble indices of all assets in the economy, including stocks, bonds, and real estate. This shows the bubble index of the entire economy. Therefore, in theory, this method can measure the bubble of a single asset, and can also grasp the degree of bubble of a country's economy on a macro scale. The problem with this approach is how to determine the parameters in the model of marginal rate of return on capital, especially for those markets where interest rates have not been marketized, but this is a useful attempt and has a theoretical basis. Other basic value measurement methods include price-earnings ratio method (PIE), q-value method, and so on.

The second idea is based on the recognition that the bubble is the result of the deviation of virtual capital from the real economy. The main indicators are the growth rate of total financial instrument issuance / GDP growth rate, the growth rate of the value of financial instrument stocks, and the growth rate of gross national wealth. The former reflects the growth rate of virtual capital from the perspective of flow, but because different countries are at different stages of development and the degree of development of virtual capital markets is different, it is difficult to accurately reflect the degree of bubbles, and there is a lack of comparability between countries; The latter measures bubbles from the perspective of stocks, but national wealth is difficult to measure. Gordon Smith (Goldsmith, 1994) proposed the financial correlation ratio (R) method. The so-called FIR refers to the ratio of existing financial assets to national wealth at a certain point in time. He believes that this formula can roughly measure the degree of a country's financial development and can reflect the degree of a country's financial bubble to a certain extent.

Because the economic bubble is constantly changing. Therefore, some scholars try to describe it from a dynamic perspective. This is the third way of thinking about bubble measurement.

Zhang Wenkai and Bao Jianxiang (1999) proposed to use the ratio of the growth rate of stock market value to the growth rate of nominal GDP to measure the rate of change of the bubble. The shortcoming of this model is that for the emerging stock market, the growth of stock market value may come from both the bubble and the market expansion, so it is difficult to truly reflect the speed of the bubble change. [16t Dong Guiting (2001) proposed a bubble inflation rate model based on the former (stock market bubble inflation rate = stock market price index growth rate / GDP growth rate), and dynamically judged based on the value and symbol of the stock market bubble inflation rate The expanded or contracted state of the foam and its severity.

From the above discussion, it can be seen that since the introduction of the rational expectations research framework in the 1980s, the bubble theory has gradually transitioned from qualitative analysis to quantitative analysis, and equilibrium analysis has evolved to disequilibrium analysis. On this basis, limited rational analysis paradigms such as noise trading theory and behavioral finance theory, which have gotten rid of the framework of rational expectations analysis, have also gradually developed, enriching the bubble theory, making people unable to clear the market for the bubble's price-demand relationship and arbitrage. The awareness of the phenomenon continues to increase. In particular, the research on foam inspection and measurement provides a theoretical basis and analytical tools for the monitoring and regulation of actual economic operations, and contributes to the balanced and stable development of the real economy. Is the economic bubble index; w_the proportion of the first asset in total assets.

However, despite the study of bubbles since the "tulip frenzy" of the 17th century (and perhaps even longer), it is undeniable that today's bubble theory is still preliminary and limited. The most obvious manifestation is that there is still no consensus on the meaning and formation mechanism of the bubble. What is the basic value (or theoretical value)? This is directly related to the validity of the test and measurement of the economic bubble. Moreover, the current rational bubble theory relies on strict assumptions, so it is difficult to reflect complex economic reality, and it can only explain local phenomena of the actual economy. In empirical terms, since all tests rely on the probability-based convergence of statistics, the support of data samples is very important. However, for a market with incomplete information disclosure or too short time series, this is difficult to do; and Most of the current empirical methods are after-the-fact research, and the ex-ante forecast of the economic bubble has not yet been well-designed.

Even so, we cannot deny the guiding significance of the existing theoretical and empirical results about bubbles to practice. After all, these theories and methods have given us a deeper understanding of the nature and mechanism of bubbles, and they can also provide control for the actual economy. Bubble ideas and methods.