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Safe asset shortages and asset price bubbles

Author

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  • Aoki, Kosuke
  • Nakajima, Tomoyuki
  • Nikolov, Kalin

Abstract

We build a model economy in which a shortage of safe assets can create conditions for intrinsically useless ‘safe’ bubble assets to circulate at a positive price. Our environment features infinitely lived individuals who are not subject to credit constraints but who face uninsurable idiosyncratic production risk. Bubbly equilibria exist when safe assets offer real returns below the growth rate of the economy. Bubble assets circulate at a positive price only if they offer returns which are safe relative to production returns. These ‘safe’ bubbles reduce consumption volatility but exert a contractionary effect on the economy.

Suggested Citation

  • Aoki, Kosuke & Nakajima, Tomoyuki & Nikolov, Kalin, 2014. "Safe asset shortages and asset price bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 164-174.
  • Handle: RePEc:eee:mateco:v:53:y:2014:i:c:p:164-174
    DOI: 10.1016/j.jmateco.2014.05.005
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    Cited by:

    1. Miao, Jianjun, 2014. "Introduction to economic theory of bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 130-136.
    2. Alberto Martin & Jaume Ventura, 2017. "The macroeconomics of rational bubbles: a user's guide," Economics Working Papers 1581, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Bidian, Florin, 2016. "Robust bubbles with mild penalties for default," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 141-153.
    4. 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.
    5. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2017. "Asset bubbles and efficiency in a generalized two-sector model," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 37-48.
    6. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    7. Keshav Dogra & Sushant Acharya, 2017. "The Side Effects of Safe Asset Creation," 2017 Meeting Papers 1453, Society for Economic Dynamics.
    8. Dániel Horváth & Róbert Szini, 2015. "The safety trap – the financial market and macroeconomic consequences of the scarcity of safe assets," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(1), pages 111-138.
    9. repec:cbh:journl:v:14:y:2015:i:1:p:111-138 is not listed on IDEAS
    10. Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2016. "Rational land and housing bubbles in infinite-horizon economies," Documents de travail du Centre d'Economie de la Sorbonne 16027, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    11. repec:hal:journl:halshs-01316876 is not listed on IDEAS
    12. repec:wsi:ijtafx:v:20:y:2017:i:08:n:s0219024917500546 is not listed on IDEAS
    13. repec:hal:journl:halshs-01314609 is not listed on IDEAS

    More about this item

    Keywords

    Safe asset shortage; Asset price bubbles;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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