We analyze the relationships between bubbles, capital flows, and economic activities in a rational bubble model with … two large open economies. We establish a reinforcing relationship between global imbalances and bubbles. Capital flows … from South to North facilitate the emergence and the size of bubbles in the North. Bubbles in the North in turn facilitate …

bubbles it is lower. Lower Spillover Persistence also associates with a more fragile system, e.g., a higher probability of …