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Asset Bubbles, Unemployment, and a Financial Crisis

Listed author(s):
  • 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)

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.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp156.pdf
File Function: First version, 2017
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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 156.

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Length: 43 pages
Date of creation: Feb 2017
Date of revision: Feb 2017
Handle: RePEc:kgu:wpaper:156
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