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Safe Asset Shortages and Asset Price Bubbles

Author

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  • Kosuke Aoki
  • Tomoyuki Nakajima
  • Kalin Nikolov

Abstract

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.

Suggested Citation

  • Kosuke Aoki & Tomoyuki Nakajima & Kalin Nikolov, 2014. "Safe Asset Shortages and Asset Price Bubbles," CIGS Working Paper Series 14-006E, The Canon Institute for Global Studies.
  • Handle: RePEc:cnn:wpaper:14-006e
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    File URL: http://www.canon-igs.org/research_papers/140530_nakajima.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2016. "Rational land and housing bubbles in infinite-horizon economies," Documents de travail du Centre d'Economie de la Sorbonne 16027, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2017. "Asset bubbles and efficiency in a generalized two-sector model," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 37-48.
    3. repec:wsi:ijtafx:v:20:y:2017:i:08:n:s0219024917500546 is not listed on IDEAS
    4. Takuma Kunieda & Tarishi Matsuoka & Akihisa Shibata, 2017. "Asset Bubbles, Technology Choice, and Financial Crises," Discussion Paper Series 157, School of Economics, Kwansei Gakuin University, revised Feb 2017.
    5. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    6. Miao, Jianjun, 2014. "Introduction to economic theory of bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 130-136.
    7. Alberto Martin & Jaume Ventura, 2017. "The macroeconomics of rational bubbles: a user's guide," Economics Working Papers 1581, Department of Economics and Business, Universitat Pompeu Fabra.
    8. Bidian, Florin, 2016. "Robust bubbles with mild penalties for default," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 141-153.
    9. Dániel Horváth & Róbert Szini, 2015. "The safety trap – the financial market and macroeconomic consequences of the scarcity of safe assets," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(1), pages 111-138.
    10. Keshav Dogra & Sushant Acharya, 2017. "The Side Effects of Safe Asset Creation," 2017 Meeting Papers 1453, Society for Economic Dynamics.
    11. repec:hal:journl:halshs-01316876 is not listed on IDEAS
    12. repec:cbh:journl:v:14:y:2015:i:1:p:111-138 is not listed on IDEAS
    13. repec:hal:journl:halshs-01314609 is not listed on IDEAS

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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