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Globalization and financial development: A model of the Dot-Com and the Housing Bubbles

  • Basco, Sergi

In the last decade the United States experienced the burst of the Dot-Com and the Housing Bubbles. I develop a model to study the relationship between globalization and the emergence of rational bubbles. I also analyze how the effect of globalization on house prices depends on the type of bubble. I show that bubbles cannot arise in a financially developed country in autarky. In contrast, as globalization progresses, bubbles are more likely to appear in the financially developed country. I also show that house prices increase with globalization only when the bubble is attached to houses. This prediction is consistent with empirical evidence for U.S. metropolitan areas.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022199613001050
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 92 (2014)
Issue (Month): 1 ()
Pages: 78-94

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Handle: RePEc:eee:inecon:v:92:y:2014:i:1:p:78-94
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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