Asset Bubbles and Endogenous Growth
We study the interaction between productive and nonproductive savings in an economy that grows in the long run due to endogenous improvements in labor productivity. As in the neoclassical growth setting with overlapping generations studied by Tirole (1985), asset bubbles can exist in an economy with endogenous growth provided they are not too large and that the growth rate in the equilibrium without bubbles exceeds the interest rate. Since the growth rate in the bubble-less equilibrium is endogenous, the existence condition reflects parameters of tastes and technology. We find that bubbles, when they exist, retard the growth of the economy, perhaps even in the long run, and reduce the welfare of all generations born after the bubble appears.
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|Date of creation:||1992|
|Date of revision:|
|Contact details of provider:|| Postal: PRINCETON UNIVERSITY, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON NEW- JERSEY 08542 U.S.A.|
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- Rebelo, Sergio, 1991.
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"Rational Ponzi Games,"
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Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 431-50, August.
- Stephen A. O'Connell & Stephen P. Zeldes, . "Rational Ponzi Games," Rodney L. White Center for Financial Research Working Papers 18-86, Wharton School Rodney L. White Center for Financial Research.
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