Asset bubbles and bailouts

Tomohiro Hirano, Masaru Inaba and Noriyuki Yanagawa

Journal of Monetary Economics, 2015, vol. 76, issue S, S71-S89

Abstract: As long as bubble size is relatively small, bubbles increase production level, but once the size becomes too large, then bubbles reduce it. Given this non-monotonic relationship, this paper investigates the relationship between bubbles and government bailouts. It shows that bailouts for bursting bubbles may positively influence ex ante production efficiency and relax the existence condition of stochastic bubbles. The level of bailouts has a non-monotonic relationship with production efficiency and a “partial bailout” policy achieves production efficiency. Moreover, it examines the welfare effects of bailout policies rigorously and shows that even non-risky bubbles may be undesirable for taxpayers.

Keywords: Bubble size; Anticipated bailouts; Production efficiency; Boom–bust cycles; Optimal bailout policy (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393215001166
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Asset Bubbles and Bailouts (2015)
Working Paper: Asset Bubbles and Bailouts (2015)
Working Paper: Asset Bubbles and Bailouts (2014)
Working Paper: Asset Bubbles and Bailouts (2012)
Working Paper: Asset Bubbles and Bailout (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:76:y:2015:i:s:p:s71-s89

DOI: 10.1016/j.jmoneco.2015.09.008

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().