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Bubbly firm dynamics and aggregate fluctuations

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  • Tang, Haozhou
  • Zhang, Donghai

Abstract

The transmission channel of asset bubbles is studied in a heterogeneous firm model with endogenous entry and exit. We highlight the effects of asset bubbles along the extensive margin: the aggregate bubble can boost real economic activities by affecting firms’ entry and exit decisions. Moreover, the model predicts the selection effect of bubbles: bubbly firms—firms with asset bubbles—are less productive than bubble-less firms. Finally, we provide empirical evidence that supports bubbles’ effects along the extensive margin.

Suggested Citation

  • Tang, Haozhou & Zhang, Donghai, 2022. "Bubbly firm dynamics and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 64-80.
    • Handle: RePEc:eee:moneco:v:132:y:2022:i:c:p:64-80
    DOI: 10.1016/j.jmoneco.2022.08.003
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    References listed on IDEAS

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    Cited by:

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    2. Francisco Queirós, 2024. "The real side of stock market exuberance: bubbles, output and productivity at the industry level," Economica, London School of Economics and Political Science, vol. 91(361), pages 268-291, January.

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    More about this item

    Keywords

    Rational bubbles; Extensive margin; Firm dynamics; Heterogeneous firms;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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