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 `safe' bubble assets to circulate at a positive price. Our environment features infinitely lived individuals 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 offer returns which are safe relative to production returns. These `safe' bubbles reduce consumption volatility but exert a contractionary effect on the economy.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 894.
Date of creation: Apr 2014
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Safe Asset Shortage; Asset Price Bubbles.;
Other versions of this item:
- 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.
- Kosuke Aoki & Tomoyuki Nakajima & Kalin Nikolov, 2014. "Safe Asset Shortages and Asset Price Bubbles," CIGS Working Paper Series 14-006E, The Canon Institute for Global Studies.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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