Note on Bubbles Attached to Real Assets

Tomohiro Hirano and Alexis Akira Toda

Papers from arXiv.org

Abstract: A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational bubbles attached to real assets, emphasizing the following three points. (i) There exist plausible economic models in which bubbles inevitably emerge in the sense that all equilibria are bubbly. (ii) Such models are necessarily nonstationary but their long-run behavior can be analyzed using the local stable manifold theorem. (iii) Bubbles attached to real assets can naturally and necessarily arise with economic development. Finally, we present a model with stocks and land, and show that bubbles in aggregate stock and land prices necessarily emerge.

Date: 2024-10
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (2)

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