Asset Bubbles, Entrepreneurial Risks, and Economic Growth

Takeo Hori () and Ryonghun Im ()
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Takeo Hori: Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology
Ryonghun Im: School of Economics, Kwansei Gakuin University

No 237, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Entrepreneurs are exposed to large uninsured risks. The risks may discourage them from　creating productive assets. This may generate a productive asset shortage and stimulate speculative demand for bubbles. We introduce within-period entrepreneurial risks into a textbook growth model with in finitely lived agents. In our model, entrepreneurs face no credit constraints. If the degree of entrepreneurial risks is in the middle range, bubbles are likely to emerge. If the degree of entrepreneurial risks is high, bubbles promote growth because of the wealth effect. Otherwise, bubbles lower growth. The effect of the collapse of bubbles also depends on the degree of the risks. Moreover, asset bubbles amplify fundamental shocks.

Keywords: asset bubbles; idiosyncratic risks; amplification; growth effect; welfare analysis (search for similar items in EconPapers)
JEL-codes: E21 E23 E44 G01 G11 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-04
New Economics Papers: this item is included in nep-ent and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:237

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