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Economic Growth with Bubbles

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Listed author(s):
  • Jaume Ventura and Alberto Martín

Abstract

Updated July 2011 We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibriumdispersion in the rates of return to investment. During bubbly episodes, unproductive investors demand bubbles while productive investors supply them. Because of this, bubbly episodes channel resources towards productive investment raising the growth rates of capital and output. The model also illustrates that the existence of bubbly episodes requires some investment to be dynamically inefficient: otherwise, there would be no demand for bubbles. This dynamic inefficiency, however, might be generated by an expansionary episode itself.

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File URL: http://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/445.pdf
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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 445.

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Date of creation: Mar 2010
Handle: RePEc:bge:wpaper:445
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Keywords: Bubbles; dynamic inefficiency; economic growth; financial frictions; pyramid schemes;

Other versions of this item:

Find related papers by JEL classification:
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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