Safe Asset Shortages and Asset Price Bubbles
AbstractWe build a model economy in which a shortage of safe assets can create conditions for intrinsically useless safebubble assets to circulate at a positive price. Our environment features in nitely lived individu-als who are not subject to credit constraints but who face uninsurable idiosyncratic production risk. Bubbly equilibria exist when safe assets offer real returns below the growth rate of the economy. Bubble assets circulate at a positive price only if they o¤er returns which are safe rel-ative to production returns. These safebubbles reduce consumption volatility but exert a contractionary e¤ect on the economy.
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Bibliographic InfoPaper provided by The Canon Institute for Global Studies in its series CIGS Working Paper Series with number 14-006E.
Date of creation: May 2014
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Other versions of this item:
- Kosuke Aoki & Tomoyuki Nakajima & Kalin Nikolov, 2014. "Safe Asset Shortages and Asset Price Bubbles," KIER Working Papers 894, Kyoto University, Institute of Economic Research.
- Kosuke Aoki & Tomoyuki Nakajima & Kalin Nikolov, 2014. "Safe Asset Shortages and Asset Price Bubbles," CARF F-Series CARF-F-344, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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