Bursting Bubbles in a Macroeconomic Model

Tomohiro Hirano, Keiichi Kishi and Alexis Akira Toda

No 2503, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper identifies the conditions and mechanisms that give rise to stochastic bubbles that are expected to collapse. To illustrate the essence of the emergence of stochastic bubbles, we first present a toy model, and then we present a full-fledged macro-finance model of intangible capital and show that stochastic stock bubbles attached to intangible capital emerge in the process of spillover of technological innovation. We show that the dynamics with stochastic bubbles, which is characterized by unbalanced growth, is a temporary deviation from a balanced growth path in which asset prices equal the fundamentals.

Keywords: balanced growth; intangible capital; stochastic bubbles; technological innovation; unbalanced growth (search for similar items in EconPapers)
JEL-codes: D52 D53 E44 G12 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2025-01
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Related works:
Working Paper: Bursting Bubbles in a Macroeconomic Model (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2503

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