Asset Bubbles and Bailouts

Tomohiro Hirano, Masaru Inaba and Noriyuki Yanagawa

No 19, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper investigates the relationship between bubbles and governmentbailouts. As long as bubble size is relatively small, bubbles increase production level, but once the size becomes too large, then bubbles reduce it. Given this non-monotonic relationship, we show that bailouts for bursting bubbles may positively influence ex-ante production efficiency and relax the existence condition of stochastic bubbles. The level of bailouts has a non-monotonic relationship with production efficiency and a "partial bailout" policy achieves production efficiency. Moreover, it examines the welfare effects of bailout policies rigorously and shows that even non-risky bubbles may be undesirable for taxpayers.

Keywords: Bubble Size; Anticipated Bailouts; Production Efficiency; Boom-Bust Cycles; Optimal Bailout Policy (search for similar items in EconPapers)
JEL-codes: E32 E44 E61 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2015-05
New Economics Papers: this item is included in nep-mac and nep-ore
Note: First Version: April 2011, This Version: March 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27746/wp019.pdf

Related works:
Journal Article: Asset bubbles and bailouts (2015)
Working Paper: Asset Bubbles and Bailouts (2015)
Working Paper: Asset Bubbles and Bailouts (2014)
Working Paper: Asset Bubbles and Bailouts (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:remfce:19

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