Bubbles and Macroeconomics
In this essay, I discuss two alleged bubbles and what they might imply for U.S. macroeconomics.
Why do foreign investors invest so heavily in dollar-denominated assets and bear the risk of a decline in the dollar? Personally, I think it is because they are stupid. But that is not an appropriate answer for an economist to give.
If I were forced to pick an economic theory to explain the dollar bubble, it would be the theory of the safe haven.
For Discussion. I argue that U.S. macroeconomic performance is not threatened by the prospect of either the “dollar bubble” or the “bond bubble” popping. Do you agree?