Safe Asset Shortages and Asset Price Bubbles
We build a model economy in which a shortage of safe assets can create conditions for intrinsically useless safebubble assets to circulate at a positive price. Our environment features in nitely lived individu-als who are not subject to credit constraints but who face uninsurable idiosyncratic production risk. Bubbly equilibria exist when safe assets offer real returns below the growth rate of the economy. Bubble assets circulate at a positive price only if they o¤er returns which are safe rel-ative to production returns. These safebubbles reduce consumption volatility but exert a contractionary e¤ect on the economy.
|Date of creation:||May 2014|
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