Bubbles and crowding-in of capital via a savings glut
This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.wiwi.kit.edu/|
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