Recurrent Bubbles and Economic Growth

Pablo A. Guerron-Quintana, Tomohiro Hirano and Ryo Jinnai ()

No 20-005E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: We study a regime-switching recurrent bubble model with endogenous growth. The economy experiences both bubbly and bubbleless regimes recurrently. Innitely lived households expect future bubbles, which crowds out investment and reduces economic growth. Because realized bubbles crowd in investment, their overall impact on economic growth and welfare crucially depends on both the level of nancial development and the frequency of bubbles. We examine the U.S. economic data through the lens of our model, nding evidence of recurrent bubbles. Furthermore, counterfactual simulations suggest that 1) the IT and housing bubbles together lifted U.S. GDP by almost 2 percentage points permanently; and 2) the U.S. economy could have grown even faster if people had believed that asset bubbles would not arise.

Pages: 55
Date: 2020-05
New Economics Papers: this item is included in nep-fdg, nep-gro and nep-mac
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Recurrent Bubbles and Economic Growth (2020)
Working Paper: Recurrent Bubbles and Economic Growth (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cnn:wpaper:20-005e

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