IDEAS home Printed from https://ideas.repec.org/p/kyo/wpaper/1037.html
   My bibliography  Save this paper

Asset Bubbles, Unemployment, and Financial Market Frictions

Author

Listed:
  • Ken-ichi Hashimoto

    (Kobe University)

  • Ryonghun Im

    (Kyoto University)

  • Takuma Kunieda

    (Kwansei Gakuin University)

  • Akihisa Shibata

    (Kyoto University)

Abstract

A tractable model with infinitely lived agents is constructed for the examination of bubbles and unemployment. It is demonstrated that the presence of bubbles stimulates capital accumulation and reduces unemployment. The presence of bubbles also changes the effects of government policies that target unemployment and welfare conditions in the labor market. The main findings are as follows: (i) the presence of bubbles is more beneficial to an economy with severe credit constraints; (ii) the presence of bubbles mitigates the negative effects of taxation and unemployment benefits on unemployment and welfare; and (iii) these mitigation effects decrease as credit constraints are relaxed.

Suggested Citation

  • Ken-ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2020. "Asset Bubbles, Unemployment, and Financial Market Frictions," KIER Working Papers 1037, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:1037
    as

    Download full text from publisher

    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP1037.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin Falk, 2006. "What drives business Research and Development (R&D) intensity across Organisation for Economic Co-operation and Development (OECD) countries?," Applied Economics, Taylor & Francis Journals, vol. 38(5), pages 533-547.
    2. Pol Antràs & Ricardo J. Caballero, 2009. "Trade and Capital Flows: A Financial Frictions Perspective," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 701-744, August.
    3. Ken-ichi Hashimoto & Ryonghun Im, 2019. "Asset bubbles, labour market frictions and R&D-based growth," Canadian Journal of Economics, Canadian Economics Association, vol. 52(2), pages 822-846, May.
    4. John Moore & Nobuhiro Kiyotaki, 2008. "Liquidity, Business Cycles, and Monetary Policy," 2008 Meeting Papers 35, Society for Economic Dynamics.
    5. repec:wop:calsdi:97-23 is not listed on IDEAS
    6. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism and Macroeconomic Volatility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1359-1397.
    7. Alberto Martin & Jaume Ventura, 2012. "Economic Growth with Bubbles," American Economic Review, American Economic Association, vol. 102(6), pages 3033-3058, October.
    8. Luigi Guiso & Michael Haliassos & Tullio Jappelli, 2003. "Household stockholding in Europe: where do we stand and where do we go? [‘Limited market participation and volatility of assets prices’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(36), pages 123-170.
    9. Ken‐ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2022. "Asset bubbles, unemployment, and financial market frictions," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1806-1832, October.
    10. Vasco M. Carvalho & Alberto Martin & Jaume Ventura, 2012. "Understanding Bubbly Episodes," American Economic Review, American Economic Association, vol. 102(3), pages 95-100, May.
    11. Céline Rochon & Herakles Polemarchakis, 2006. "Debt, liquidity and dynamics," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(1), pages 179-211, January.
    12. Ken-ichi Hashimoto & Ryonghun Im, 2016. "Bubbles and unemployment in an endogenous growth model," Oxford Economic Papers, Oxford University Press, vol. 68(4), pages 1084-1106.
    13. Kazuo Mino, 2008. "Growth And Bubbles With Consumption Externalities," The Japanese Economic Review, Japanese Economic Association, vol. 59(1), pages 33-53, March.
    14. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    15. Siddhartha Biswas & Andrew Hanson & Toan Phan, 2020. "Bubbly Recessions," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(4), pages 33-70, October.
    16. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228, Elsevier.
    17. Koichi Futagami & Akihisa Shibata, 2000. "Growth Effects of Bubbles in an Endogenous Growth Model," The Japanese Economic Review, Japanese Economic Association, vol. 51(2), pages 221-235, June.
    18. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
    19. Roger E. A. Farmer, 2012. "Confidence, Crashes and Animal Spirits," Economic Journal, Royal Economic Society, vol. 122(559), pages 155-172, March.
    20. Kunieda, Takuma & Shibata, Akihisa, 2016. "Asset bubbles, economic growth, and a self-fulfilling financial crisis," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 70-84.
    21. Pan, Wei-Fong, 2020. "How Does The Macroeconomy Respond To Stock Market Fluctuations? The Role Of Sentiment," Macroeconomic Dynamics, Cambridge University Press, vol. 24(2), pages 421-446, March.
    22. repec:hal:spmain:info:hdl:2441/5571 is not listed on IDEAS
    23. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    24. Grossman, Gene M. & Yanagawa, Noriyuki, 1993. "Asset bubbles and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 3-19, February.
    25. Hanson, Andrew & Phan, Toan, 2017. "Bubbles, wage rigidity, and persistent slumps," Economics Letters, Elsevier, vol. 151(C), pages 66-70.
    26. Vuillemey, Guillaume & Wasmer, Etienne, 2020. "Frictional unemployment with stochastic bubbles," European Economic Review, Elsevier, vol. 122(C).
    27. Aoki, Kosuke & Nikolov, Kalin, 2015. "Bubbles, banks and financial stability," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 33-51.
    28. Jean-Paul Fitoussi & David Jestaz & Edmund S. Phelps & Gylfi Zoega, 2000. "Roots of the Recent Recoveries: Labor Reforms or Private Sector Forces?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 237-311.
    29. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 173-222.
    30. King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
    31. Mitsui, Toshihide & Watanabe, Shinichi, 1989. "Monetary growth in a turnpike environment," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 123-137, July.
    32. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
    33. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    34. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    35. Bean, Charles & Pissarides, Christopher, 1993. "Unemployment, consumption and growth," European Economic Review, Elsevier, vol. 37(4), pages 837-854, May.
    36. repec:hal:wpspec:info:hdl:2441/5571 is not listed on IDEAS
    37. Aghion, Philippe & Banerjee, Abhijit, 2005. "Volatility and Growth," OUP Catalogue, Oxford University Press, number 9780199248612.
    38. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 217-227.
    39. Tomohiro Hirano & Noriyuki Yanagawa, 2017. "Asset Bubbles, Endogenous Growth, and Financial Frictions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 406-443.
    40. Kunieda, Takuma, 2014. "A note on the crowd-in effect of asset bubbles in the perpetual youth model," Mathematical Social Sciences, Elsevier, vol. 72(C), pages 50-54.
    41. repec:oup:restud:v:84:y::i:1:p:406-443. is not listed on IDEAS
    42. Futagami, Koichi & Shibata, Akihisa, 1999. "Welfare effects of bubbles in an endogenous growth model," Research in Economics, Elsevier, vol. 53(4), pages 381-403, December.
    43. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
    44. Matsuoka, Tarishi & Shibata, Akihisa, 2012. "Asset bubbles, credit market imperfections, and technology choice," Economics Letters, Elsevier, vol. 116(1), pages 52-55.
    45. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma, 2020. "Asset Bubbles, Unemployment, and a Financial Crisis," Journal of Macroeconomics, Elsevier, vol. 65(C).
    46. Jianjun Miao & Pengfei Wang & Lifang Xu, 2016. "Stock market bubbles and unemployment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(2), pages 273-307, February.
    47. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    48. Jordi Gal?, 2014. "Monetary Policy and Rational Asset Price Bubbles," American Economic Review, American Economic Association, vol. 104(3), pages 721-752, March.
    49. Kunieda, Takuma, 2008. "Asset bubbles and borrowing constraints," Journal of Mathematical Economics, Elsevier, vol. 44(2), pages 112-131, January.
    50. Luigi Guiso & Michael Haliassos & Tullio Jappelli (ed.), 2003. "Stockholding in Europe," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-50267-3.
    51. Nobuhiro Kiyotaki & John Moore, 2019. "Liquidity, Business Cycles, and Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2926-2966.
    52. Edmund S. Phelps, 1999. "Behind This Structural Boom: The Role of Asset Valuations," American Economic Review, American Economic Association, vol. 89(2), pages 63-68, May.
    53. Philippe Weil, 1987. "Confidence and the Real Value of Money in an Overlapping Generations Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 1-22.
    54. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    55. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ken‐ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2022. "Asset bubbles, unemployment, and financial market frictions," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1806-1832, October.
    2. Zhang, Xiaoming & Wei, Chunyan & Lee, Chien-Chiang & Tian, Yiming, 2023. "Systemic risk of Chinese financial institutions and asset price bubbles," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    3. Francisco Queirós, 2024. "The real side of stock market exuberance: bubbles, output and productivity at the industry level," Economica, London School of Economics and Political Science, vol. 91(361), pages 268-291, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma, 2020. "Asset Bubbles, Unemployment, and a Financial Crisis," Journal of Macroeconomics, Elsevier, vol. 65(C).
    2. 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.
    3. Kunieda, Takuma & Shibata, Akihisa, 2012. "Asset bubbles, economic growth, and a self-fulfilling financial crisis: a dynamic general equilibrium model of infinitely lived heterogeneous agents," MPRA Paper 37309, University Library of Munich, Germany.
    4. Ken‐ichi Hashimoto & Ryonghun Im, 2019. "Asset bubbles, labour market frictions and R&D‐based growth," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(2), pages 822-846, May.
    5. Kunieda, Takuma & Shibata, Akihisa, 2016. "Asset bubbles, economic growth, and a self-fulfilling financial crisis," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 70-84.
    6. Ken-ichi Hashimoto & Ryonghun Im, 2016. "Bubbles and unemployment in an endogenous growth model," Oxford Economic Papers, Oxford University Press, vol. 68(4), pages 1084-1106.
    7. Alberto Martin & Jaume Ventura, 2018. "The Macroeconomics of Rational Bubbles: A User's Guide," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 505-539, August.
    8. Kunieda, Takuma, 2014. "A note on the crowd-in effect of asset bubbles in the perpetual youth model," Mathematical Social Sciences, Elsevier, vol. 72(C), pages 50-54.
    9. Siddhartha Biswas & Andrew Hanson & Toan Phan, 2020. "Bubbly Recessions," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(4), pages 33-70, October.
    10. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).
    11. Hirano, Tomohiro & Toda, Alexis Akira, 2024. "Bubble economics," LSE Research Online Documents on Economics 122042, London School of Economics and Political Science, LSE Library.
    12. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma & Shibata, Akihisa, 2022. "Financial destabilization," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    13. Guillaume Vuillemey & Etienne Wasmer, 2016. "Frictional Unemployment and Stochastic Bubbles," Working Papers hal-03393187, HAL.
    14. Vuillemey, Guillaume & Wasmer, Etienne, 2020. "Frictional unemployment with stochastic bubbles," European Economic Review, Elsevier, vol. 122(C).
    15. Guillaume Vuillemey & Etienne Wasmer, 2016. "Frictional Unemployment and Stochastic Bubbles," SciencePo Working papers hal-03393187, HAL.
    16. repec:hal:spmain:info:hdl:2441/3tjqcugffh9i1qqufo79qh86il is not listed on IDEAS
    17. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    18. Hori, Takeo & Im, Ryonghun, 2023. "Asset bubbles, entrepreneurial risks, and economic growth," Journal of Economic Theory, Elsevier, vol. 210(C).
    19. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    20. Bo Zhao, 2015. "Rational housing bubble," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 60(1), pages 141-201, September.
    21. Jacopo Bonchi, 2023. "Asset Price Bubbles and Monetary Policy: Revisiting the Nexus at the Zero Lower Bound," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 186-203, January.

    More about this item

    Keywords

    Asset bubbles; Unemployment; Labor-market matching frictions; Financial frictions;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kyo:wpaper:1037. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Makoto Watanabe (email available below). General contact details of provider: https://edirc.repec.org/data/iekyojp.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.