In this talk, Prof Stiglitz will present on his paper "Land Speculation, Booms, and Busts with Endogenous Phase Transitions: A Model of Economic Fluctuations with Rational Exuberance"
We develop a model of macroeconomic fluctuations with rational exuberance. Endogenous instabilities in the macroeconomic system occur in a dynamic general equilibrium model with rational expectations, with endogenous booms and busts in asset prices. There are a plethora of rational expectation equilibria trajectories driven by people’s beliefs; land prices and other key macro variables “wobble” within well-identified ranges with repeated boom- bust fluctuations. As a result of interactions between land prices and capital accumulation, the macroeconomy changes endogenously between stable and unstable states— “endogenous phase transitions” occur. There is a tipping point when land speculation reaches an unsustainable level, and bullish expectations suddenly must turn bearish, leading to an endogenous crash. We analyze the set of parameter values for which such macroeconomic fluctuations occur and show how policy interventions can affect stability. We show the robustness of the results, extending the analysis to a two-sector model with manufacturing and real estate.
About the Speaker:
PROFESSOR JOSEPH E. STIGLITZ
University Professor at Columbia Univeristy
Chief Economist of The Roosevelt Institute
Co-founder and President of the Initiative for Policy Dialogue (IPD)
Co-Chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress, Organisation for Economic Co-operation and Development.
Joseph E. Stiglitz is an American economist and a professor at Columbia University. He is also the co-chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and the Chief Economist of the Roosevelt Institute. Stiglitz was awarded the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979. He is a former senior vice president and chief economist of the World Bank and a former chair of the U.S. Council of Economic Advisers. In 2000, Stiglitz founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University. In 2011 Stiglitz was named by Time magazine as one of the 100 most influential people in the world. Known for his pioneering work on asymmetric information, Stiglitz's research focuses on income distribution, climate change, corporate governance, public policy, macroeconomics and globalization. He is the author of numerous books including, most recently, People, Power, and Profits, Rewriting the Rules of the European Economy, and Globalization and Its Discontents Revisited.