Bubbles and Capital Flows
AbstractThis paper presents a stylized model of international trade and asset price bubbles. Its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world. These bubbles absorb local savings, eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries. Through this channel, bubbles act as a substitute for international capital flows, improving the international allocation of investment and reducing rate-of-return differentials across countries. This view of asset price bubbles could eventually provide a simple account of some real world phenomenae that have been difficult to model before, such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 446.
Date of creation: Mar 2010
Date of revision:
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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- Martin, Alberto & Ventura, Jaume, 2010.
"Economic Growth with Bubbles,"
CEPR Discussion Papers
7770, C.E.P.R. Discussion Papers.
- Alberto Martin, 2010. "Economic Growth with Bubbles," 2010 Meeting Papers 788, Society for Economic Dynamics.
- Alberto Martin & Jaume Ventura, 2010. "Economic Growth with Bubbles," NBER Working Papers 15870, National Bureau of Economic Research, Inc.
- Jaume Ventura & Alberto Martin, 2010. "Economic Growth with Bubbles," Working Papers 445, Barcelona Graduate School of Economics.
- Alberto Martin & Jaume Ventura, 2003. "Economic growth with bubbles," Economics Working Papers 848, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2011.
- King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
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