Globalization and financial development: A model of the Dot-Com and the Housing Bubbles

Sergi Basco

Journal of International Economics, 2014, vol. 92, issue 1, 78-94

Abstract: In the last decade the United States experienced the burst of the Dot-Com and the Housing Bubbles. I develop a model to study the relationship between globalization and the emergence of rational bubbles. I also analyze how the effect of globalization on house prices depends on the type of bubble. I show that bubbles cannot arise in a financially developed country in autarky. In contrast, as globalization progresses, bubbles are more likely to appear in the financially developed country. I also show that house prices increase with globalization only when the bubble is attached to houses. This prediction is consistent with empirical evidence for U.S. metropolitan areas.

Keywords: Financial development; Globalization; Rational bubbles; Housing supply elasticity (search for similar items in EconPapers)
JEL-codes: E44 F21 F32 R31 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (54)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:92:y:2014:i:1:p:78-94

DOI: 10.1016/j.jinteco.2013.10.008

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