Advanced Search
MyIDEAS: Login to save this article or follow this journal

The spirit of capitalism, stock market bubbles and output fluctuations

Contents:

Author Info

  • Takashi Kamihigashi

Abstract

This paper presents a representative agent model in which stock market bubbles cause output fluctuations. Assuming that utility depends directly on wealth, we show that stock market bubbles arise if the marginal utility of wealth does not decline to zero as wealth goes to infinity. Bubbles may affect output positively or negative depending on whether the production function exhibits increasing or decreasing returns to scale. In sunspot equilibria, the bursting of a bubble is followed by a sharp decline in output one period later. Various numerical examples are given to illustrate the behavior of stochastic bubbles and the relationship between bubbles and output.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1742-7363.2007.00066.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.

Volume (Year): 4 (2008)
Issue (Month): 1 ()
Pages: 3-28

as in new window
Handle: RePEc:bla:ijethy:v:4:y:2008:i:1:p:3-28

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1742-7355

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=1742-7355

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Futagami, Koichi & Shibata, Akihisa, 1999. "Welfare effects of bubbles in an endogenous growth model," Research in Economics, Elsevier, Elsevier, vol. 53(4), pages 381-403, December.
  2. Allen, Franklin & Gale, Douglas, 1999. "Bubbles, Crises, and Policy," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 15(3), pages 9-18, Autumn.
  3. Takashi Kamihigashi, 2003. "Almost sure convergence to zero in stochastic growth models," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 170, Research Institute for Economics & Business Administration, Kobe University, revised May 2005.
  4. Montrucchio, Luigi & Privileggi, Fabio, 2001. "On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type," Journal of Economic Theory, Elsevier, vol. 101(1), pages 158-188, November.
  5. Grossman, Gene M. & Yanagawa, Noriyuki, 1993. "Asset bubbles and endogenous growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 31(1), pages 3-19, February.
  6. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
  7. Binswanger, Mathias, 2004. "Stock returns and real activity in the G-7 countries: did the relationship change during the 1980s?," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 44(2), pages 237-252, May.
  8. Obstfeld, Maurice & Rogoff, Kenneth, 1986. "Ruling out divergent speculative bubbles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(3), pages 349-362, May.
  9. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, Econometric Society, vol. 65(1), pages 19-58, January.
  10. Kamihigashi, Takashi, 2003. "Necessity of transversality conditions for stochastic problems," Journal of Economic Theory, Elsevier, vol. 109(1), pages 140-149, March.
  11. Liutang Gong & Heng-fu Zou, 2001. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 53, China Economics and Management Academy, Central University of Finance and Economics.
  12. Smith, William T, 2001. "How Does the Spirit of Capitalism Affect Stock Market Prices?," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 14(4), pages 1215-32.
  13. Tomoyuki Nakajima, 2003. "Sunspot Fluctuations in Asset Prices and Business Cycles in Japan Over 1986-1999," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 54(3), pages 253-274.
  14. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
  15. Chang, Wen-ya & Tsai, Hsueh-fang & Lai, Ching-chong, 2004. "Taxation, growth, and the spirit of capitalism," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1011-1025, November.
  16. Hassapis, Christis & Kalyvitis, Sarantis, 2002. "Investigating the links between growth and real stock price changes with empirical evidence from the G-7 economies," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 42(3), pages 543-575.
  17. Takashi Kamihigashi, 1998. "Uniqueness of asset prices in an exchange economy with unbounded utility," Economic Theory, Springer, Springer, vol. 12(1), pages 103-122.
  18. Kamihigashi, Takashi, 2001. "Necessity of Transversality Conditions for Infinite Horizon Problems," Econometrica, Econometric Society, Econometric Society, vol. 69(4), pages 995-1012, July.
  19. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1499-1528, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Nakamoto, Yasuhiro, 2009. "Jealousy and underconsumption in a one-sector model with wealth preference," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(12), pages 2015-2029, December.
  2. Lise Clain-Chamosset-Yvrard & Thomas Seegmuller, 2013. "Rational Bubbles and Macroeconomic Fluctuations: The (De-)Stabilizing Role of Monetary Policy," Working Papers halshs-00793063, HAL.
  3. Zhou, Ge, 2011. "Rational bubbles and the spirit of capitalism," MPRA Paper 33988, University Library of Munich, Germany.
  4. Zhou, Ge, 2012. "Rational equity bubbles," MPRA Paper 39398, University Library of Munich, Germany.
  5. Takashi Kamihigashi, 2010. "Recurrent Bubbles," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2010-27, Research Institute for Economics & Business Administration, Kobe University, revised Nov 2010.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:ijethy:v:4:y:2008:i:1:p:3-28. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.