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Bursting Bubbles in a Macroeconomic Model

Author

Listed:
  • Tomohiro Hirano

    (Royal Holloway, University of London
    Centre for Macroeconomics (CFM))

  • Keiichi Kishi

    (Kansai University)

  • Alexis Akira Toda

    (Emory University)

Abstract

This paper identifies the conditions and mechanisms that give rise to stochastic bubbles that are expected to collapse. To illustrate the essence of the emergence of stochastic bubbles, we first present a toy model, and then we present a full-fledged macro-finance model of intangible capital and show that stochastic stock bubbles attached to intangible capital emerge in the process of spillover of technological innovation. We show that the dynamics with stochastic bubbles, which is characterized by unbalanced growth, is a temporary deviation from a balanced growth path in which asset prices equal the fundamentals.

Suggested Citation

  • Tomohiro Hirano & Keiichi Kishi & Alexis Akira Toda, 2025. "Bursting Bubbles in a Macroeconomic Model," Discussion Papers 2503, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2503
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    File URL: https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussion-Papers-2025/CFMDP2025-03-Paper.pdf
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    More about this item

    Keywords

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    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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