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Bubbles and unemployment in an endogenous growth model

Author

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  • Ken-ichi Hashimoto
  • Ryonghun Im

Abstract

We construct a continuous-time overlapping-generations model with labour market frictions to examine the relationships among unemployment, asset bubbles, and economic growth. We show that the existence of asset bubbles is contingent upon the unemployment rate: a bubble (non-bubble) regime arises in equilibrium when unemployment is relative low (high). Our framework focuses on the boom and bust of asset bubbles caused by changes in fundamental variables, not a stochastic probability. Then, as labour market frictions generate a negative relationship between the unemployment rate and economic growth, we find that the bubble regime exhibits a higher growth rate than the non-bubble regime. Furthermore, we show that policy or parameter changes that have a positive influence on the labour market shift the economy from a non-bubble regime to a bubble regime.

Suggested Citation

  • Ken-ichi Hashimoto & Ryonghun Im, 2016. "Bubbles and unemployment in an endogenous growth model," Oxford Economic Papers, Oxford University Press, vol. 68(4), pages 1084-1106.
    • Handle: RePEc:oup:oxecpp:v:68:y:2016:i:4:p:1084-1106.
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    File URL: http://hdl.handle.net/10.1093/oep/gpw032
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    Cited by:

    1. Ken-ichi Hashimoto & Ryonghun Im, 2019. "Asset bubbles, labour market frictions and R&D-based growth," Canadian Journal of Economics, Canadian Economics Association, vol. 52(2), pages 822-846, May.
    2. Bright Isaac Ikhenaode & Carmelo Pierpaolo Parello, 2018. "Endogenous Migration in a Two-Country Model with Labor Market Frictions," Working Papers in Public Economics 184, Department of Economics and Law, Sapienza University of Roma.
    3. Marco M. Sorge, 2025. "Politics, Financial Regulation and Housing Bubbles," The Journal of Real Estate Finance and Economics, Springer, vol. 70(1), pages 65-91, January.
    4. 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.
    5. Ikhenaode, Bright Isaac & Parello, Carmelo Pierpaolo, 2020. "Immigration and remittances in a two-country model of growth with labor market frictions," Economic Modelling, Elsevier, vol. 93(C), pages 675-692.
    6. Bahloul Zekkari, Kathia, 2024. "Asset bubble and growth: Elastic labor supply with fiscal policy," Journal of Mathematical Economics, Elsevier, vol. 110(C).
    7. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma, 2020. "Asset Bubbles, Unemployment, and a Financial Crisis," Journal of Macroeconomics, Elsevier, vol. 65(C).

    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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