Necessity of Rational Asset Price Bubbles in Two Sector Growth Economies

Tomohiro Hirano, Ryo Jinnai () and Alexis Akira Toda

No 23-002E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: We present plausible economic models in which an equilibrium with rational asset price bubbles exists but equilibria with asset prices equal to fundamental values do not. These economies feature multiple sectors with faster economic growth than dividend growth. In our two-sector endogenous growth model, entrepreneurs have access to a production technology subject to idiosyncratic investment risk (tech sector) and trade a dividend-paying asset (land). When leverage is relaxed beyond a critical value, the unique trend stationary equilibrium exhibits a phase transition from the fundamental regime to the bubbly regime with growth, implying the inevitability of bubbles with loose financial conditions.

Keywords: bubble; endogenous growth; leverage; phase transition; transversality condition. JEL codes: D52; D53; G12. (search for similar items in EconPapers)
Pages: 46
Date: 2023-01
New Economics Papers: this item is included in nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cigs.canon/en/uploads/2023/01/WorkingPaper_Hirano_202301_23-002E.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cnn:wpaper:23-002e

Access Statistics for this paper

More papers in CIGS Working Paper Series from The Canon Institute for Global Studies Contact information at EDIRC.
Bibliographic data for series maintained by The Canon Institute for Global Studies ().