Bubbles and crowding-in of capital via a savings glut
AbstractThis paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected. --
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Bibliographic InfoPaper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 48.
Date of creation: 2013
Date of revision:
rational bubbles; savings glut; crowding-in; financial frictions;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-20 (All new papers)
- NEP-MAC-2013-12-20 (Macroeconomics)
- NEP-MIC-2013-12-20 (Microeconomics)
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