Asset Bubbles, Endogenous Growth, and Financial Frictions

Tomohiro Hirano and Noriyuki Yanagawa

The Review of Economic Studies, 2017, vol. 84, issue 1, 406-443

Abstract: This article analyses the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the financial market might increase the potential for asset bubbles. Moreover, when the degree of pledgeability is relatively low, bubbles boost long-run growth; when it is relatively high, bubbles lower growth. Furthermore, we examine the effects of a bubble burst, and show that the effects depend on the degree of pledgeability, that is, the quality of the financial system. Finally, we conduct a full welfare analysis of asset bubbles.

Keywords: Asset bubbles; Endogenous growth; Pledgeability; Bubble burst; Welfare effects of bubbles (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (107)

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Related works:
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2016)
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2016)
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2010)
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:84:y:2017:i:1:p:406-443.

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