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Bubble Necessity Theorem

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  • Tomohiro Hirano
  • Alexis Akira Toda

Abstract

Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of asset price bubbles. We establish the Bubble Necessity Theorem in a plausible general class of economic models: with faster long run economic growth (G) than dividend growth (Gd) and counterfactual long run autarky interest rate (R) below dividend growth, all equilibria are bubbly with non-negligible bubble sizes relative to the economy. The bubble necessity condition R

Suggested Citation

  • Tomohiro Hirano & Alexis Akira Toda, 2023. "Bubble Necessity Theorem," CIGS Working Paper Series 23-011E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:23-011e
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    References listed on IDEAS

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