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Note on Bubbles Attached to Real Assets

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  • Tomohiro Hirano
  • Alexis Akira Toda

Abstract

A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational bubbles attached to real assets, emphasizing the following three points. (i) There exist plausible economic models in which bubbles inevitably emerge in the sense that all equilibria are bubbly. (ii) Such models are necessarily nonstationary but their long-run behavior can be analyzed using the local stable manifold theorem. (iii) Bubbles attached to real assets can naturally and necessarily arise with economic development. Finally, we present a model with stocks and land, and show that bubbles in aggregate stock and land prices necessarily emerge.

Suggested Citation

  • Tomohiro Hirano & Alexis Akira Toda, 2024. "Note on Bubbles Attached to Real Assets," Papers 2410.17425, arXiv.org.
    • Handle: RePEc:arx:papers:2410.17425
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    File URL: http://arxiv.org/pdf/2410.17425
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    References listed on IDEAS

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    1. Kevin X.D. Huang & Jan Werner, 2000. "Asset price bubbles in Arrow-Debreu and sequential equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 253-278.
    2. repec:hal:pseose:hal-01302382 is not listed on IDEAS
    3. repec:hal:cesptp:hal-03594185 is not listed on IDEAS
    4. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    5. Phillips, Peter C.B. & Shi, Shu-Ping, 2018. "Financial Bubble Implosion And Reverse Regression," Econometric Theory, Cambridge University Press, vol. 34(4), pages 705-753, August.
    6. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2022. "Real indeterminacy and dynamics of asset price bubbles in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    7. Luigi Montrucchio, 2004. "Cass transversality condition and sequential asset bubbles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(3), pages 645-663, October.
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    Cited by:

    1. Ngoc-Sang Pham, 2024. "The relationship between general equilibrium models with infinite-lived agents and overlapping generations models, and some applications," Papers 2411.07674, arXiv.org, revised Feb 2025.
    2. Tomohiro Hirano & Alexis Akira Toda, 2025. "Toward Bubble Clarity: A Comment on Miao and Wang," Econ Journal Watch, Econ Journal Watch, vol. 22(1), pages 1-1–17, March.

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