Speculative Growth and the AI "Bubble"

Ricardo Caballero ()

No 34722, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: High valuations of AI-related firms are usually read in binary terms: either they reflect fundamentals or they are a bubble. This paper develops a third possibility: a price bubble can have a permanent real legacy. AI capital expands productive capacity and shifts income toward high-saving capital owners. Over time, this funding feedback lowers the interest rate and can generate multiple steady states, including a self-sustaining high-capital economy. But rational pricing from the low-capital state does not take the economy there. The transition requires a temporary overvaluation: investors perceive high returns, valuation rises, investment accelerates, and the transition itself raises the interest rate. The overvaluation must eventually correct; the question is whether it corrects too soon. If enough capital has been installed before the correction, the economy lands in the high-capital state. If not, the transition fails. The technology can be real even when peak valuations are not sustained. The incidence is asymmetric: workers receive higher wages at the high-capital destination despite a lower worker share, while capitalists finance the capital accumulation and bear the cost of the correction in belief-supported prices.

JEL-codes: E21 E22 E24 E44 O33 O41 (search for similar items in EconPapers)
Date: 2026-01
New Economics Papers: this item is included in nep-bec, nep-fdg, nep-gro and nep-mac
Note: AP EFG
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w34722.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
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:nbr:nberwo:34722

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34722
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().