Bubbles and Capital Flows
This paper presents a stylized model of international trade and asset price bubbles. Its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world. These bubbles absorb local savings, eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries. Through this channel, bubbles act as a substitute for international capital flows, improving the international allocation of investment and reducing rate-of-return differentials across countries. This view of asset price bubbles could eventually provide a simple account of some real world phenomenae that have been difficult to model before, such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries.
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- Martin, Alberto & Ventura, Jaume, 2010.
"Economic Growth with Bubbles,"
CEPR Discussion Papers
7770, C.E.P.R. Discussion Papers.
- Alberto Martin & Jaume Ventura, 2003. "Economic growth with bubbles," Economics Working Papers 848, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2011.
- Jaume Ventura and Alberto Martín, 2010. "Economic Growth with Bubbles," Working Papers 445, Barcelona Graduate School of Economics.
- Alberto Martin, 2010. "Economic Growth with Bubbles," 2010 Meeting Papers 788, Society for Economic Dynamics.
- Alberto Martin & Jaume Ventura, 2010. "Economic Growth with Bubbles," NBER Working Papers 15870, National Bureau of Economic Research, Inc.
- King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
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