Athakrit Thepmongkol and Pichet Kaytanyaluk
National Institute of Development Administration, Thailand
tong_econ@hotmail.com
Abstract:
This paper aims to test the theoretical policy implication on rational bubbles. Many works, including Caballero
and Krishnamurthy (2006), Kocherlakota (2009), and Martin and Ventura (2011), suggested that government bonds can rule
out rational bubbles. We constructed our own bubble index using the Fourier transformation technique and, as a result, found
the empirical support of the theory in the case of Singapore, but not in the case of Thailand. For the case of Singapore, the
credibility in an ability to collect tax and the appropriate yield of government bonds are keys to the effectiveness of such the
anti-bubble policy. Moreover, we also found that expansionary fiscal policies empirically accelerate the growth of bubbles.
Keywords : Rational Bubbles, Fourier Transformation, Government Bonds, and Fiscal Policies.
