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Bursting Bubbles in a Macroeconomic Model

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  • Tomohiro Hirano
  • Keiichi Kishi
  • Alexis Akira Toda

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 that shows that land price bubbles that are expected to collapse emerge as the unique equilibrium outcome. 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. The dynamics with stochastic bubbles, which is characterized by unbalanced growth, can be seen as 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," CIGS Working Paper Series 25-001E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:25-001e
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Yuliy Sannikov, 2014. "A Macroeconomic Model with a Financial Sector," American Economic Review, American Economic Association, vol. 104(2), pages 379-421, February.
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    3. Kevin X.D. Huang & Jan Werner, 2000. "Asset price bubbles in Arrow-Debreu and sequential equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 253-278.
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