Bubble Necessity Theorem

Tomohiro Hirano and Alexis Akira Toda

No 23-011E, CIGS Working Paper Series from The Canon Institute for Global Studies

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 asset price 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. The bubble necessity condition R

Pages: 35
Date: 2023-07
New Economics Papers: this item is included in nep-gro
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Bubble Necessity Theorem (2025)
Working Paper: Bubble Necessity Theorem (2024)
Working Paper: Bubble Necessity Theorem (2024)
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