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Economic Growth with Bubbles

  • Alberto Martin

    (CREI and UPF)

This paper presents a stylized model of economic growth with bubbles. This model views asset price bubbles as a market-generated device to moderate the effects of frictions in financial markets, improving the allocation of investments and raising the capital stock and welfare. It shows that, contrary to conventional wisdom, bubbles can arise even if all investments in the economy are dynamically efficient.

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File URL: https://www.economicdynamics.org/meetpapers/2010/paper_788.pdf
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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 788.

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Date of creation: 2010
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Handle: RePEc:red:sed010:788
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. Kenneth R. French & James M. Poterba, 1990. "Were Japanese Stock Prices Too High?," NBER Working Papers 3290, National Bureau of Economic Research, Inc.
  2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  3. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  4. Aart Kraay & Jaume Ventura, 2005. "The Dot-Com Bubble, the Busch Deficits and the US Current Account," Working Papers 216, Barcelona Graduate School of Economics.
  5. 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.
  6. Jaume Ventura, 2002. "Bubbles and capital flows," Economics Working Papers 846, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2010.
  7. Martin, Alberto & Ventura, Jaume, 2011. "Theoretical notes on bubbles and the current crisis," Working Paper Series 1348, European Central Bank.
  8. Noriyuki Yanagawa & Gene M. Grossman, 1992. "Asset Bubbles and Endogenous Growth," NBER Working Papers 4004, National Bureau of Economic Research, Inc.
  9. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
  10. Ventura, Jaume, 2005. "Global View of Economic Growth," CEPR Discussion Papers 5059, C.E.P.R. Discussion Papers.
  11. Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
  12. Farhi, Emmanuel & Tirole, Jean, 2009. "Bubbly Liquidity," IDEI Working Papers 577, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2011.
  13. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.
  14. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  15. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  16. Mark Wright & Guido Sandleris, 2011. "The Costs of Financial Crises: Resource Misallocation, Productivity and Welfare in the 2001 Argentine Crisis," 2011 Meeting Papers 900, Society for Economic Dynamics.
  17. King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
  18. Weil, Philippe, 1987. "Confidence and the Real Value of Money in an Overlapping Generations Economy," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 1-22, February.
  19. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 85(3), pages 709-734, September.
  20. Goyal, Vidhan K. & Yamada, Takeshi, 2002. "Asset Price Shocks, Financial Constraints, and Investment: Evidence from Japan," CEI Working Paper Series 2002-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  21. Diba, Behzad T & Grossman, Herschel I, 1987. "On the Inception of Rational Bubbles," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 697-700, August.
  22. Ricardo J. Caballero & Arvind Krishnamurthy, 2005. "Bubbles and Capital Flow Volatility: Causes and Risk Management," NBER Working Papers 11618, National Bureau of Economic Research, Inc.
  23. Saint-Paul, Gilles, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1243-59, November.
  24. Azariadis Costas & Smith Bruce D., 1993. "Adverse Selection in the Overlapping Generations Model: The Case of Pure Exchange," Journal of Economic Theory, Elsevier, vol. 60(2), pages 277-305, August.
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