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Sectoral bubbles, misallocation, and endogenous growth

Jianjun Miao () and Pengfei Wang ()

Journal of Mathematical Economics, 2014, vol. 53, issue C, 153-163

Abstract: Stock price bubbles are often on productive assets and occur in a sector of the economy. In addition, their occurrence is often accompanied by credit booms. Incorporating these features, we provide a two-sector endogenous growth model with credit-driven stock price bubbles. Bubbles have a credit easing effect in that they relax collateral constraints and improve investment efficiency. Sectoral bubbles also have a capital reallocation effect in the sense that bubbles in a sector attract more capital to be reallocated to that sector. Their impact on economic growth depends on the interplay between these two effects. Bubbles may misallocate resources across sectors and reduce welfare.

Keywords: Bubbles; Collateral constraints; Externality; Economic growth; Capital reallocation; Multiple equilibria (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:53:y:2014:i:c:p:153-163

DOI: 10.1016/j.jmateco.2013.12.003

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