ASSET BUBBLES IN A MONOPOLISTIC COMPETITIVE MACRO MODEL

Partha Sen
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Partha Sen: Delhi School of Economics

No 39, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: I look at the existence of asset. bubbles in a monopolistically competitive dynamic macroeconomic model. The positive predictions of the model are very similar to Tirole’s competitive model. But the welfare effects are very different-in that as capital gets crowded out welfare falls. The monopolistically competitive sector contracts and the wage rate falls, lowering welfare. Earlier versions of this paper were presented at seminars at the Delhi School of Economics, Cambridge, Strathclyde and ISI Calcutta.

Pages: 26 pages
Date: 1996-06
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