Asset Bubbles, Technology Choice, and Financial Crises

Takuma Kunieda, Tarishi Matsuoka and Akihisa Shibata

No 157, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: How does an economy fall into depression after an asset bubble bursts? To address this question, we extend Matsuyama’s (2007) overlapping-generations model with multiple technologies to a dynamic general equilibrium model with infinitely lived agents. Our analysis focuses on a case of two technologies: one with high productivity and another with low productivity. The crowd-in effect that asset bubbles have on capital accumulation occurs in equilibrium, in which the high interest rates resulting from asset bubbles crowd out low-productivity technology. When asset bubbles with high-productivity technology collapse, a depression follows.

Keywords: Asset bubbles; Crowd-in effect; Matsuyama model; Infinitely-lived agents (search for similar items in EconPapers)
JEL-codes: E32 E44 O41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-02, Revised 2017-02
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:157

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