BUBBLES IN PRICES OF EXHAUSTIBLE RESOURCES

This article proposes a test for the presence of a bubble in the price of an exhaustible resource. A bubble is accompanied by a rise in the storage-to-consumption ratio: Consumption peters out, and a fraction of the original stock is held forever. The test suggests there is a bubble in the price of...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2013-02, Vol.54 (1), p.1-34
Main Author: Jovanovic, Boyan
Format: Article
Language:English
Subjects:
Auctions
Bottles
Commodities
Commodity money
Consumer economics
Consumption
Economic bubbles
Economic resources
Money
Natural resources
Non-renewable resources
Nonrenewable resources
Oil market
Oil price
Prices
Stocks
Studies
Test methods
Welfare economics
Wine bottles
Wines
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Summary:This article proposes a test for the presence of a bubble in the price of an exhaustible resource. A bubble is accompanied by a rise in the storage-to-consumption ratio: Consumption peters out, and a fraction of the original stock is held forever. The test suggests there is a bubble in the price of oil and in the market for high-end Bordeaux wines, but other explanations are also possible. A bubble reduces welfare regardless of whether there are other stores of value, particularly fiat money.
ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12000