This paper examines how monetary expansion causes asset bubbles. When there is no monetary expansion, a bubbly asset is not created due to a hold-up problem. Monetary expansion increases buyers' money holdings, and then, dealers are willing to buy a worthless asset from sellers, in hopes of...

We study a model of dynamic adverse selection in which a large group of sellers sell an asset of uncertain quality to a larger group of buyers. The quality is known to the sellers but unknown to the buyers. There is, however, the possibility that if the asset is of low quality, this will be...