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Sectoral Bubbles and Endogenous Growth

  • Pengfei Wang

    (Hong Kong University of Science and Tech)

  • Jianjun Miao

    (Boston University)

Stock price bubbles are often on productive assets and occur in a sector of the economy. In addition, their occurence is often accompanied by credit booms. Incorporating these features, we provide a two-sector endogenous growth model with credit-driven stock price bubbles. Bubbles have a credit easing effect in that they relax collateral constraints and improve investment efficiency. Sectoral bubbles also have a capital reallocation effect in the sense that bubbles in a sector attract more capital to be reallocated to that sector. Their impact on economic growth depends on the interplay between these two effects.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 227.

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Date of creation: 2012
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Handle: RePEc:red:sed012:227
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