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Asset Bubbles, Unemployment, and a Financial Crisis

Author

Listed:
  • Takuma Kunieda

    () (School of Economics, Kwansei Gakuin University)

  • Ken-ichi Hashimoto

    () (Graduate School of Economics, Kobe University)

  • Ryonghun Im

    () (Graduate School of Economics, Kobe University)

Abstract

A tractable model with asset bubbles is presented to demonstrate that a financial crisis caused by a bubble bursting increases unemployment rates. A bubbly asset has a positive market value because purchasing the asset is the sole saving method for agents who draw insufficient productivity, whereas selling the asset is a fund-raising method to initiate an investment project. The presence of bubbles corrects allocative inefficiency, relocating investment resources from low-productivity agents to high-productivity agents. Accordingly, the presence of bubbles can promote capital accumulation and reduce unemployment rates. However, a self-fulfilling financial crisis would result in high unemployment rates.

Suggested Citation

  • Takuma Kunieda & Ken-ichi Hashimoto & Ryonghun Im, 2017. "Asset Bubbles, Unemployment, and a Financial Crisis," Discussion Paper Series 156, School of Economics, Kwansei Gakuin University, revised Feb 2017.
  • Handle: RePEc:kgu:wpaper:156
    as

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    File URL: http://192.218.163.163/RePEc/pdf/kgdp156.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Overlapping generations; Labor market friction; Borrowing constraints; Asset bubbles; Unemployment;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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