Safe Asset Shortages and Asset Price Bubbles

Kosuke Aoki, Tomoyuki Nakajima and Kalin Nikolov
Additional contact information
Kosuke Aoki: The University of Tokyo

No CARF-F-344, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: We build a model economy in which a shortage of safe assets can create conditions for intrinsically useless 'safe' bubble assets to circulate at a positive price. Our environment features infinitely lived individuals who are not subject to credit constraints but who face uninsurable idiosyncratic production risk. Bubbly equilibria exist when safe assets offer real returns below the growth rate of the economy. Bubble assets circulate at a positive price only if they offer returns which are safe relative to production returns. These 'safe' bubbles reduce consumption volatility but exert a contractionary effect on the economy.

Pages: 44 pages
Date: 2014-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (33)

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https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/F344.pdf (application/pdf)

Related works:
Journal Article: Safe asset shortages and asset price bubbles (2014)
Working Paper: Safe Asset Shortages and Asset Price Bubbles (2014)
Working Paper: Safe Asset Shortages and Asset Price Bubbles (2014)
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