This 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 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 has important implications for the way we think about economic growth and fluctuations. It also provides 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9304.
Length: Date of creation: Nov 2002 Date of revision: Handle: RePEc:nbr:nberwo:9304
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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.:
Olivier, Jacques, 2000.
"Growth-Enhancing Bubbles,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 133-51, February.
Aart Kraay & Norman Loayza & Luis Serven & Jaume Ventura, 2000.
"Country Portfolios,"
NBER Working Papers
7795, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Aart Kraay & Norman Loayza & Luis Servén & Jaume Ventura, 2000.
"Country portfolios,"
Economics Working Papers
913, Department of Economics and Business, Universitat Pompeu Fabra.
[Downloadable!]
Cited by: (explanations, 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.)
Aart Kraay & Norman Loayza & Luis Servén & Jaume Ventura, 2000.
"Country portfolios,"
Economics Working Papers
913, Department of Economics and Business, Universitat Pompeu Fabra.
[Downloadable!]
Other versions:
Aart Kraay & Norman Loayza & Luis Serven & Jaume Ventura, 2000.
"Country Portfolios,"
NBER Working Papers
7795, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Maurice Obstfeld, 2004.
"External Adjustment,"
NBER Working Papers
10843, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
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