IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v59y2012i3p303-317.html
   My bibliography  Save this article

Intangible capital, relative asset shortages and bubbles

Author

Listed:
  • Giglio, Stefano
  • Severo, Tiago

Abstract

Purely technological factors can be a fundamental force behind the emergence of asset price bubbles in developed economies. We analyze an economy in which the production technology utilizes both physical and intangible capital, where the latter cannot be used as collateral for borrowing. Technological change, in the form of increased importance of intangible capital in production, sharpens the borrowing constraints of entrepreneurs, leading to a scarcity of high-yield assets relative to low-yield ones. This can create the conditions for asset bubbles. Additionally, due to the financial frictions, standard dynamic efficiency tests are not valid, and bubbles are not Pareto improving.

Suggested Citation

  • Giglio, Stefano & Severo, Tiago, 2012. "Intangible capital, relative asset shortages and bubbles," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 303-317.
  • Handle: RePEc:eee:moneco:v:59:y:2012:i:3:p:303-317
    DOI: 10.1016/j.jmoneco.2012.03.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304393212000384
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Efraim Benmelech & Mark J. Garmaise & Tobias J. Moskowitz, 2005. "Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 1121-1154.
    2. Barlevy, Gadi, 2014. "A leverage-based model of speculative bubbles," Journal of Economic Theory, Elsevier, vol. 153(C), pages 459-505.
    3. Emmanuel Farhi & Ricardo Caballero & Pierre-Olivier Gourinchas, "undated". "Financial Crash, Commodity Prices and Global Imbalances," Working Paper 20933, Harvard University OpenScholar.
    4. Shleifer, Andrei & Vishny, Robert W, 1992. "Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    5. Mauro Giorgio Marrano & Jonathan Haskel, 2006. "How Much Does the UK Invest in Intangible Assets?," Working Papers 578, Queen Mary University of London, School of Economics and Finance.
    6. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
    7. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46, National Bureau of Economic Research, Inc.
    8. Alberto Martin & Jaume Ventura, 2012. "Economic Growth with Bubbles," American Economic Review, American Economic Association, vol. 102(6), pages 3033-3058, October.
    9. repec:hrv:faseco:30728046 is not listed on IDEAS
    10. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    11. Kocherlakota, Narayana R., 1992. "Bubbles and constraints on debt accumulation," Journal of Economic Theory, Elsevier, vol. 57(1), pages 245-256.
    12. Kyoji Fukao & Tsutomu Miyagawa & Kentaro Mukai & Yukio Shinoda & Konomi Tonogi, 2009. "Intangible Investment In Japan: Measurement And Contribution To Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 717-736, September.
    13. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 1-19.
    14. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, September.
    15. King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
    16. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-393, March.
    17. Allen F. & Morris S. & Postlewaite A., 1993. "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 61(2), pages 206-229, December.
    18. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1, May.
    19. Guido Lorenzoni, 2008. "Inefficient Credit Booms," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 809-833.
    20. Enrique G. Mendoza, 2007. "Financial Integration, Financial Deepness and Global Imbalance," 2007 Meeting Papers 746, Society for Economic Dynamics.
    21. Nazim Belhocine, 2008. "Treating Intangible Inputs As Investment Goods: The Impact On Canadian Gdp," Working Paper 1215, Economics Department, Queen's University.
    22. Aghion, P. & Askenazy, P. & Berman, N. & Cette, G. & Eymard, L., 2008. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Working papers 198, Banque de France.
    23. Luboš Pástor & Pietro Veronesi, 2009. "Technological Revolutions and Stock Prices," American Economic Review, American Economic Association, vol. 99(4), pages 1451-1483, September.
    24. Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
    25. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Introduction to "Measuring Capital in the New Economy"," NBER Chapters, in: Measuring Capital in the New Economy, pages 1-10, National Bureau of Economic Research, Inc.
    26. Farhi, Emmanuel & Tirole, Jean, 2008. "Competing Liquidities: Corporate Securities Real Bonds and Bubbles," IDEI Working Papers 506, Institut d'Économie Industrielle (IDEI), Toulouse.
    27. David Laibson & Johanna Mollerstrom, 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis," Economic Journal, Royal Economic Society, vol. 120(544), pages 354-374, May.
    28. Grossman, Gene M. & Yanagawa, Noriyuki, 1993. "Asset bubbles and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 3-19, February.
    29. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
    30. Kocherlakota, Narayana, 2008. "Injecting rational bubbles," Journal of Economic Theory, Elsevier, vol. 142(1), pages 218-232, September.
    31. Efraim Benmelech, 2009. "Asset Salability and Debt Maturity: Evidence from Nineteenth-Century American Railroads," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1545-1584, April.
    32. John R. Conlon, 2004. "Simple Finite Horizon Bubbles Robust to Higher Order Knowledge," Econometrica, Econometric Society, vol. 72(3), pages 927-936, May.
    33. Robert E. Hall, 2000. "E-Capital: The Link between the Stock Market and the Labor Market in the 1990s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 73-118.
    34. Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-388, May.
    35. Olivier, Jacques, 2000. "Growth-Enhancing Bubbles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 133-151, February.
    36. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    37. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
    38. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    39. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-255, January.
    40. Alessandra Canepa & Paul Stoneman, 2008. "Financial constraints to innovation in the UK: evidence from CIS2 and CIS3," Oxford Economic Papers, Oxford University Press, vol. 60(4), pages 711-730, October.
    41. repec:pse:psecon:2008-26 is not listed on IDEAS
    42. Franklin Allen & Gary Gorton, 1993. "Churning Bubbles," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 813-836.
    43. J. Michael Harrison & David M. Kreps, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 92(2), pages 323-336.
    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. Kaiji Chen & Yi Wen, 2017. "The Great Housing Boom of China," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 73-114, April.
    2. Bidian, Florin, 2016. "Robust bubbles with mild penalties for default," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 141-153.
    3. Gregory Thwaites, 2014. "Why are real interest rates so low? Secular stagnation and the relative price of investment goods," Discussion Papers 1428, Centre for Macroeconomics (CFM).
    4. Andrea Caggese & Ander Perez, 2017. "Capital Misallocation and Secular Stagnation," Finance and Economics Discussion Series 2017-009, Board of Governors of the Federal Reserve System (U.S.).
    5. Dietrich, Diemo & Hauck, Achim, 2014. "Bank capital regulation, loan contracts, and corporate investment," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 230-241.
    6. Tomohiro Hirano & Noriyuki Yanagawa, 2017. "Asset Bubbles, Endogenous Growth, and Financial Frictions," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 406-443.
    7. Bejan, Camelia & Bidian, Florin, 2014. "Bubbles and trading in incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 137-144.
    8. Mr. Ehsan Ebrahimy, 2019. "Liquidity Choice and Misallocation of Credit," IMF Working Papers 2019/284, International Monetary Fund.
    9. Mitra, Shalini, 2018. "Intangible Capital and the Rise in Wage and Hours Volatility," MPRA Paper 89697, University Library of Munich, Germany.
    10. Bidian, Florin, 2015. "Portfolio constraints, differences in beliefs and bubbles," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 317-326.
    11. Stefano Giglio & Matteo Maggiori & Johannes Stroebel, 2016. "No‐Bubble Condition: Model‐Free Tests in Housing Markets," Econometrica, Econometric Society, vol. 84, pages 1047-1091, May.
    12. Amir Kermani & Yueran Ma, 2020. "Asset Specificity of Non-Financial Firms," NBER Working Papers 27642, National Bureau of Economic Research, Inc.
    13. Rocheteau, Guillaume & Rodriguez-Lopez, Antonio, 2014. "Liquidity provision, interest rates, and unemployment," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 80-101.
    14. Mitra, Shalini, 2019. "Intangible capital and the rise in wage and hours volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 70-85.

    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. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    2. Bidian, Florin, 2015. "Portfolio constraints, differences in beliefs and bubbles," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 317-326.
    3. Miao, Jianjun, 2014. "Introduction to economic theory of bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 130-136.
    4. Mathieu Boullot, 2017. "Secular Stagnation, Liquidity Trap and Rational Asset Price Bubbles," Working Papers halshs-01295012, HAL.
    5. 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.
    6. Basco, Sergi, 2014. "Globalization and financial development: A model of the Dot-Com and the Housing Bubbles," Journal of International Economics, Elsevier, vol. 92(1), pages 78-94.
    7. Barlevy, Gadi, 2014. "A leverage-based model of speculative bubbles," Journal of Economic Theory, Elsevier, vol. 153(C), pages 459-505.
    8. Kunieda, Takuma, 2008. "Asset bubbles and borrowing constraints," Journal of Mathematical Economics, Elsevier, vol. 44(2), pages 112-131, January.
    9. Miao, Jianjun & Wang, Pengfei, 2014. "Sectoral bubbles, misallocation, and endogenous growth," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 153-163.
    10. Dow, James & Han, Jungsuk, 2015. "Contractual incompleteness, limited liability and asset price bubbles," Journal of Financial Economics, Elsevier, vol. 116(2), pages 383-409.
    11. Hirano, Tomohiro & Yanagawa, Noriyuki, 2010. "Asset Bubbles, Endogenous Growth, and Financial Frictions," MPRA Paper 24085, University Library of Munich, Germany.
    12. John Conlon, 2005. "Should Central Banks Burst Bubbles?," Game Theory and Information 0508007, University Library of Munich, Germany.
    13. Doblas-Madrid, Antonio, 2016. "A finite model of riding bubbles," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 154-162.
    14. Masaya Sakuragawa, 2013. "Bubble cycle," Working Papers e055, Tokyo Center for Economic Research.
    15. Zhou, Ge, 2011. "Rational bubbles and the spirit of capitalism," MPRA Paper 33988, University Library of Munich, Germany.
    16. Bidian, Florin, 2016. "Robust bubbles with mild penalties for default," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 141-153.
    17. Rocheteau, Guillaume & Wright, Randall, 2013. "Liquidity and asset-market dynamics," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 275-294.
    18. Allen, Franklin & Carletti, Elena, 2013. "New theories to underpin financial reform," Journal of Financial Stability, Elsevier, vol. 9(2), pages 242-249.
    19. Ricardo J. Caballero & Emmanuel Farhi & Mohamad L. Hammour, 2006. "Speculative Growth: Hints from the U.S. Economy," American Economic Review, American Economic Association, vol. 96(4), pages 1159-1192, September.
    20. Aart Kraay & Jaume Ventura, 2007. "The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 457-496, National Bureau of Economic Research, Inc.

    More about this item

    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:eee:moneco:v:59:y:2012:i:3:p:303-317. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    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: Nithya Sathishkumar (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.