We propose a framework for understanding recurrent historical episodes of vigorous economic expansion accompanied by extreme asset valuations, as exhibited by Japan in the 1980's and the U.S. in the 1990's. We interpret this phenomenon as a high-valuation equilibrium with a low effective cost of capital based on optimism about the future availability of funds for investment. The key to the sustainability of such equilibrium is feedback from increased growth to an increase in the supply of funding. We show that such feedback arises naturally when the expansion is concentrated in a new economy' sector and when it is supported by sustained financial surpluses-both of which would constitute an integral part, as cause and consequence, of a speculative growth' equilibrium. The high-valuation equilibrium we analyze may take the form of a stock market bubble. In contrast to classic bubbles on non-productive assets, the bubbles in our model encourage real investments, boost long run savings, and may appear in dynamically efficient economies.
|Date of creation:||Dec 2002|
|Date of revision:|
|Publication status:||published as Caballero, Ricardo J., E. Farhi and M. Hammour. “Speculative Growth: Hints from the US Economy." American Economic Review 96, 4 (September 2006): 1159-1192.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
- Michael Gavin & Ricardo Hausmann & Ernesto Talvi, 1997.
"Saving Behavior in Latin America: Overview and Policy Issues,"
Research Department Publications
4070, Inter-American Development Bank, Research Department.
- Michael Gavin & Ricardo Hausmann & Ernesto Talvi, 1997. "Saving Behavior in Latin America: Overview and Policy Issues," IDB Publications (Working Papers) 6427, Inter-American Development Bank.
- Jacques Olivier, 2000. "Growth-Enhancing Bubbles," Post-Print hal-00460097, HAL.
- Christopher D. Carroll & David N. Weil, 1993.
"Saving and Growth: A Reinterpretation,"
NBER Working Papers
4470, National Bureau of Economic Research, Inc.
- Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 133-192, June.
- Bart Hobijn & Boyan Jovanovic, 2000.
"The Information Technology Revolution and the Stock Market: Evidence,"
NBER Working Papers
7684, National Bureau of Economic Research, Inc.
- Bart Hobijn & Boyan Jovanovic, 2001. "The Information-Technology Revolution and the Stock Market: Evidence," American Economic Review, American Economic Association, vol. 91(5), pages 1203-1220, December.
- Guido Cozzi, 1998. "Culture as a Bubble," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 376-394, April.
- Weil, Philippe, 1990.
"On the Possibility of Price Decreasing Bubbles,"
Econometric Society, vol. 58(6), pages 1467-74, November.
- Andrew Abel & Gregory N. Mankiw & Lawrence H. Summers & Richard Zeckhauser, .
"Assessing Dynamic Efficiency: Theory and Evidence,"
Rodney L. White Center for Financial Research Working Papers
14-88, Wharton School Rodney L. White Center for Financial Research.
- Grossman, Gene M. & Yanagawa, Noriyuki, 1993.
"Asset bubbles and endogenous growth,"
Journal of Monetary Economics,
Elsevier, vol. 31(1), pages 3-19, February.
- Noriyuki Yanagawa & Gene M. Grossman, 1992. "Asset Bubbles and Endogenous Growth," NBER Working Papers 4004, National Bureau of Economic Research, Inc.
- Grossman, G.M. & Yanagawa, N., 1992. "Asset Bubbles and Endogenous Growth," Papers 160, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1243-1259.
- King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
- Philippe Weil, 1990. "On the Possibility of Price Decreasing Bubbles," Sciences Po publications info:hdl:2441/8701, Sciences Po.
- Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-88, May.
- Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May.
- Olivier, Jacques, 2000. "Growth-Enhancing Bubbles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 133-51, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9381. 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 references are entirely missing, you can add them using this form.