Bubbly firm dynamics and aggregate fluctuations

Haozhou Tang and Donghai Zhang ()

Journal of Monetary Economics, 2022, vol. 132, issue C, 64-80

Abstract: The transmission channel of asset bubbles is studied in a heterogeneous firm model with endogenous entry and exit. We highlight the effects of asset bubbles along the extensive margin: the aggregate bubble can boost real economic activities by affecting firms’ entry and exit decisions. Moreover, the model predicts the selection effect of bubbles: bubbly firms—firms with asset bubbles—are less productive than bubble-less firms. Finally, we provide empirical evidence that supports bubbles’ effects along the extensive margin.

Keywords: Rational bubbles; Extensive margin; Firm dynamics; Heterogeneous firms (search for similar items in EconPapers)
JEL-codes: E32 E44 E47 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:132:y:2022:i:c:p:64-80

DOI: 10.1016/j.jmoneco.2022.08.003

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