Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles

Tomohiro Hirano, Ryo Jinnai () and Alexis Akira Toda

No 23-015E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: We present a new theoretical framework to think about asset price bubbles in dividend-paying assets. We study a general equilibrium microfinance model with a positive feedback loop between capital investment and land price, whose magnitude is affected by financial leverage. As leverage is relaxed beyond a critical value, a phase transition occurs from balanced growth of a stationary nature where land prices reflect fundamentals (present value of rents) to unbalanced growth of a nonstationary nature where land prices grow faster than rents, generating a land price bubble. Unbalanced growth dynamics and bubbles are associated with financial deregulation and technological progress. Keywords : land bubble, leverage, nonstationarity, phase transition, unbalanced growth. JEL codes : D52, D53, E44, G12.

Pages: 38
Date: 2023-08
New Economics Papers: this item is included in nep-dge and nep-mfd
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Working Paper: Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles (2024)
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