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Asset Price Bubbles in the Kiyotaki-Moore Model

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  • Hirano, Tomohiro
  • Inaba, Masaru

Abstract

We examine the effect of asset price bubbles in the Kiyotaki-Moore model. We show that the dynamic interactions between bubble-asset price, land price, and output generate powerful bubbly dynamics. The boom-bust cycles in bubble-asset price cause boom-crash cycles in the land market simultaneously, like a contagion by affecting the fundamentals of land. We also numerically analyze the welfare effects of bubbles in transitional dynamics.

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File URL: http://mpra.ub.uni-muenchen.de/36632/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36632.

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Date of creation: Dec 2010
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Handle: RePEc:pra:mprapa:36632

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Related research

Keywords: Bubbly Dynamics; Contagion; Welfare Effects of Bubbles;

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References

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  1. Tomohiro Hirano & Noriyuki Yanagawa, 2010. "Asset Bubbles, Endogenous Growth, and Financial Frictions," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-752, CIRJE, Faculty of Economics, University of Tokyo.
  2. Kosuke Aoki & Kalin Nikolov, 2011. "Bubbles, Banks, and Financial Stability," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-253, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  3. Miller, Marcus & Stiglitz, Joseph E, 2009. "Leverage and Asset Bubbles: Averting Armageddon with Chapter 11?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7469, C.E.P.R. Discussion Papers.
  4. Pengfei Wang & Jianjun Miao, 2011. "Bubbles and Credit Constraints," 2011 Meeting Papers 94, Society for Economic Dynamics.
  5. Noriyuki Yanagawa & Gene M. Grossman, 1992. "Asset Bubbles and Endogenous Growth," NBER Working Papers 4004, National Bureau of Economic Research, Inc.
  6. Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 382-88, May.
  7. Kazuo Ueda, 2011. "Japanfs Deleveraging since the 1990s and the Bank of Japanfs Monetary Policy: Some Comparisons with the U.S. Experience since 2007," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-259, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  8. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 23(1), pages 77-100, Winter.
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