IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v57y2019i1p482-497.html
   My bibliography  Save this article

Asset Price Bubbles And Technological Innovation

Author

Listed:
  • Jong Kook Shin
  • Chetan Subramanian

Abstract

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical “lean against the wind” credit policy. (JEL E32, E44, O40)

Suggested Citation

  • Jong Kook Shin & Chetan Subramanian, 2019. "Asset Price Bubbles And Technological Innovation," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 482-497, January.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:482-497
    DOI: 10.1111/ecin.12695
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecin.12695
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecin.12695?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jordi Gal?, 2014. "Monetary Policy and Rational Asset Price Bubbles," American Economic Review, American Economic Association, vol. 104(3), pages 721-752, March.
    2. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism and Macroeconomic Volatility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1359-1397.
    3. Alberto Martin & Jaume Ventura, 2016. "Managing Credit Bubbles," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 753-789, June.
    4. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
    5. Tomohiro Hirano & Noriyuki Yanagawa, 2017. "Asset Bubbles, Endogenous Growth, and Financial Frictions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 406-443.
    6. Emmanuel Farhi & Jean Tirole, 2012. "Bubbly Liquidity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 678-706.
    7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    8. Alberto Martin & Jaume Ventura, 2012. "Economic Growth with Bubbles," American Economic Review, American Economic Association, vol. 102(6), pages 3033-3058, October.
    9. Kevin Lansing, 2009. "Speculative Bubbles and Overreaction to Technological Innovation," Journal of Financial Transformation, Capco Institute, vol. 26, pages 51-54.
    10. Jordi Galí & Luca Gambetti, 2015. "The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 233-257, January.
    11. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    12. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    13. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 173-222.
    14. Robert J. Gordon, 2015. "Secular Stagnation: A Supply-Side View," American Economic Review, American Economic Association, vol. 105(5), pages 54-59, May.
    15. Gadi Barlevy, 2007. "On the Cyclicality of Research and Development," American Economic Review, American Economic Association, vol. 97(4), pages 1131-1164, September.
    16. Takao, Kizuku, 2019. "Asset Bubbles And Economic Growth Under Endogenous Market Structure," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2338-2359, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shin, Jong Kook, 2023. "Liquidity and asset market cycles," Economics Letters, Elsevier, vol. 226(C).
    2. Annie Tubadji & Toby Denney & Don J. Webber, 2021. "Cultural relativity in consumers' rates of adoption of artificial intelligence," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1234-1251, July.
    3. Halabi, Hussein & Alshehabi, Ahmad & Wood, Geoffrey & Khan, Zaheer & Afrifa, Godfred, 2021. "The impact of international diversification on credit scores: Evidence from the UK," International Business Review, Elsevier, vol. 30(6).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alberto Martin & Jaume Ventura, 2018. "The Macroeconomics of Rational Bubbles: A User's Guide," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 505-539, August.
    2. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    3. Ken‐ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2022. "Asset bubbles, unemployment, and financial market frictions," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1806-1832, October.
    4. Vladimir Asriyan & Luca Fornaro & Alberto Martin & Jaume Ventura, 2021. "Monetary Policy for a Bubbly World [Money and Capital in a Persistent Liquidity Trap]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(3), pages 1418-1456.
    5. Jacopo Bonchi, 2023. "Asset Price Bubbles and Monetary Policy: Revisiting the Nexus at the Zero Lower Bound," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 186-203, January.
    6. Takuma Kunieda & Tarishi Matsuoka & Akihisa Shibata, 2017. "Asset Bubbles, Technology Choice, and Financial Crises," Discussion Paper Series 157, School of Economics, Kwansei Gakuin University, revised Feb 2017.
    7. Tang, Haozhou & Zhang, Donghai, 2022. "Bubbly firm dynamics and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 64-80.
    8. Kunieda, Takuma & Shibata, Akihisa, 2016. "Asset bubbles, economic growth, and a self-fulfilling financial crisis," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 70-84.
    9. Mathieu Boullot, 2017. "Secular Stagnation, Liquidity Trap and Rational Asset Price Bubbles," Working Papers halshs-01295012, HAL.
    10. Han, Jungsuk & Wang, Yenan, 2025. "All that glitters: A theory of multiple bubbles with implications for cryptocurrencies," Journal of Monetary Economics, Elsevier, vol. 152(C).
    11. Shim, Jae Hun, 2025. "Bubbles, banking and monetary policy," Journal of Financial Stability, Elsevier, vol. 76(C).
    12. Ryosuke Shimizu, 2018. "Bubbles, growth and imperfection of credit market in a two-country model," Annals of Finance, Springer, vol. 14(3), pages 353-377, August.
    13. Masaya Sakuragawa, 2013. "Bubble cycle," Working Papers e055, Tokyo Center for Economic Research.
    14. Miao, Jianjun, 2014. "Introduction to economic theory of bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 130-136.
    15. Jianjun Miao & Pengfei Wang & Jing Zhou, 2022. "Asset Bubbles and Foreign Interest Rate Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 315-348, April.
    16. repec:ipg:wpaper:2013-041 is not listed on IDEAS
    17. Miao, Jianjun & Wang, Pengfei & Zhou, Jing, 2015. "Asset bubbles, collateral, and policy analysis," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 57-70.
    18. Miao, Jianjun & Wang, Pengfei, 2014. "Sectoral bubbles, misallocation, and endogenous growth," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 153-163.
    19. Daisuke Ikeda & Toan Phan, 2013. "Asset Bubbles & Global Imbalances," Working Papers 2013-41, Department of Research, Ipag Business School.
    20. Raurich, Xavier & Seegmuller, Thomas, 2019. "On the interplay between speculative bubbles and productive investment," European Economic Review, Elsevier, vol. 111(C), pages 400-420.
    21. Larin, Benjamin, 2016. "Bubble-driven business cycles," Working Papers 143, University of Leipzig, Faculty of Economics and Management Science.

    More about this item

    JEL classification:

    • 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
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:482-497. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.