In economics, the term "speculative bubble" refers to a large upward move in an asset's price driven not by the asset's fundamentals—that is, by the earnings derivable from the asset—but rather by mere speculation that someone else will be willing to pay a higher price for it. The price increase is then arguing that there is no evidence that the Dutch tulip market really involved a speculative bubble.
By the seventeenth century, the Netherlands had become a center of cultivation and development of new tulip varieties, and a market had developed in which rare varieties of bulbs sold at high prices. For example, a Semper Augustus bulb sold in 1625 for an amount of gold worth about U.S.$11,000 in 1999. had fallen to no more than one two-hundredth of 1 percent of Semper Augustus's peak price.
Garber acknowledges that bulb prices increased dramatically from 1636 to 1637 and eventually reached very low levels. But he argues that this episode should not be described as a speculative bubble, for the increase and eventual decline in bulb prices can be explained in terms of the fundamentals. Garber argues that a a rapid rise and eventual fall of tulip bulb prices need not indicate a speculative bubble.
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