Safe asset shortages and asset price bubbles

Kosuke Aoki, Tomoyuki Nakajima and Kalin Nikolov

Journal of Mathematical Economics, 2014, vol. 53, issue C, 164-174

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.

Keywords: Safe asset shortage; Asset price bubbles (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: 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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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:53:y:2014:i:c:p:164-174

DOI: 10.1016/j.jmateco.2014.05.005

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