Bubble Necessity Theorem

Tomohiro Hirano () and Alexis Akira Toda
Additional contact information
Tomohiro Hirano: Royal Holloway, University of London

No 2421, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of bubbles. We establish the Bubble Necessity Theorem in a plausible general class of economic models: with faster long-run economic growth (G) than dividend growth (Gd) and counterfactual long-run autarky interest rate (R) below dividend growth, all equilibria are bubbly with non-negligible bubble sizes relative to the economy. This bubble necessity condition naturally arises in economies with sufficiently strong savings motives and multiple factors or sectors with uneven productivity growth.

Keywords: bubble; fundamental value; possibility versus necessity (search for similar items in EconPapers)
JEL-codes: D53 G12 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2024-04
New Economics Papers: this item is included in nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussio ... MDP2024-21-Paper.pdf (application/pdf)

Related works:
Journal Article: Bubble Necessity Theorem (2025)
Working Paper: Bubble Necessity Theorem (2024)
Working Paper: Bubble Necessity Theorem (2023)
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:cfm:wpaper:2421

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Helen Power ().