Bubble Economics

Tomohiro Hirano and Alexis Akira Toda

No 2322, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real assets such as stocks, housing, and land. The main message is that bubbles attached to real assets are fundamentally nonstationary phenomena related to unbalanced growth. We present a bare-bones model and draw three new insights: (i) the emergence of asset price bubbles is a necessity, instead of a possibility; (ii) asset pricing implications are markedly different between balanced growth of stationary nature and unbalanced growth of nonstationary nature; and (iii) asset price bubbles occur within larger historical trends involving shifts in industrial structure driven by technological innovation, including the transition from the Malthusian economy to the modern economy.

Keywords: bubbles attached to real assets; necessity versus possibility; nonstationarity; technological progress; unbalanced growth (search for similar items in EconPapers)
JEL-codes: D53 E44 G12 O16 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2023-11
New Economics Papers: this item is included in nep-fdg, nep-his and nep-mac
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Related works:
Working Paper: Bubble Economics (2025)
Journal Article: Bubble economics (2024)
Working Paper: Bubble economics (2024)
Working Paper: Bubble Economics (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2322

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