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Asset Bubbles, Technology Choice, and Financial Crises

Author

Listed:
  • Takuma Kunieda

    () (School of Economics, Kwansei Gakuin University)

  • Tarishi Matsuoka

    () (Faculty of Urban Liberal Arts, Tokyo Metropolitan University)

  • Akihisa Shibata

    () (Institute of Economic Research, Kyoto University)

Abstract

How does an economy fall into depression after an asset bubble bursts? To address this question, we extend Matsuyama’s (2007) overlapping-generations model with multiple technologies to a dynamic general equilibrium model with infinitely lived agents. Our analysis focuses on a case of two technologies: one with high productivity and another with low productivity. The crowd-in effect that asset bubbles have on capital accumulation occurs in equilibrium, in which the high interest rates resulting from asset bubbles crowd out low-productivity technology. When asset bubbles with high-productivity technology collapse, a depression follows.

Suggested Citation

  • Takuma Kunieda & Tarishi Matsuoka & Akihisa Shibata, 2017. "Asset Bubbles, Technology Choice, and Financial Crises," Discussion Paper Series 157, School of Economics, Kwansei Gakuin University, revised Feb 2017.
  • Handle: RePEc:kgu:wpaper:157
    as

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    File URL: http://192.218.163.163/RePEc/pdf/kgdp157.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asset bubbles; Crowd-in effect; Matsuyama model; Infinitely-lived agents;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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