IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Loans from the Government, Overinvestment by Households, and Asset Bubbles

  • Viktar Fedaseyeu
  • Vitaliy Strohush
Registered author(s):

    We investigate the role of government-provided loans on market outcomes. First, we show that government-provided financing can lead to asset bubbles when enough households have adaptive expectations and determine the minimum share of households with adaptive expectation that is sufficient for bubbles to arise. Second, we show that in addition to causing bubbles government-provided loans can generate a propagation mechanism behind them. Third, we show that bubbles can be avoided if financing is provided over a sufficiently large number of periods rather than all at once, even when households have adaptive expectations.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: ftp://ftp.igier.unibocconi.it/wp/2012/443.pdf
    Download Restriction: no

    Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 443.

    as
    in new window

    Length:
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:igi:igierp:443
    Contact details of provider: Postal: via Rontgen, 1 - 20136 Milano (Italy)
    Phone: 0039-02-58363301
    Fax: 0039-02-58363302
    Web page: http://www.igier.unibocconi.it/

    Order Information: Web: http://www.igier.unibocconi.it/en/papers/index.htm Email:


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    2. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
    3. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
    4. Fernandez, Raquel & Rogerson, Richard, 1995. "On the Political Economy of Education Subsidies," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 249-62, April.
    5. Farmer, Roger E A & Plotnikov, Dmitry, 2011. "Does Fiscal Policy Matter? Blinder and Solow Revisited," CEPR Discussion Papers 8189, C.E.P.R. Discussion Papers.
    6. Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2010. "Financial Innovation and Financial Fragility," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
    7. Manuel S. Santos & Michael Woodford, 1993. "Rational Asset Pricing Bubbles," Working Papers 9304, Centro de Investigacion Economica, ITAM.
    8. Johnson, George E, 1984. "Subsidies for Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 303-18, July.
    9. M. Keith Chen & Venkat Lakshminarayanan & Laurie R. Santos, 2006. "How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 517-537, June.
    10. William Blankenau, 1999. "A Welfare Analysis of Policy Responses to the Skilled Wage Premium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 820-849, October.
    11. Seshadri, Ananth & Yuki, Kazuhiro, 2004. "Equity and efficiency effects of redistributive policies," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1415-1447, October.
    12. Akyol, Ahmet & Athreya, Kartik B., 2003. "Risky higher education and subsidies," Working Paper 03-02, Federal Reserve Bank of Richmond.
    13. Hanushek, Eric & Charles Ka Yui Leung & Kuzey Yilmaz, 2002. "Redistribution through Education and Other Transfer Mechanisms," Royal Economic Society Annual Conference 2002 94, Royal Economic Society.
    14. Caucutt, Elizabeth M. & Kumar, Krishna B., 2003. "Higher education subsidies and heterogeneity: a dynamic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1459-1502, June.
    15. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-55, January.
    16. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
    17. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-81, September.
    18. Franklin Allen & Ana Babus & Elena Carletti, 2009. "Financial Crises: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 97-116, November.
    19. Farmer, Roger E.A., 2010. "How to reduce unemployment: A new policy proposal," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 557-572, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:igi:igierp:443. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.