Asset Bubbles and Endogenous Growth

Noriyuki Yanagawa and Gene Grossman

No 4004, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the interaction between productive and nonproductive savings in an economy that grows in the long run due to endogenous improvements in labor productivity. As in the neoclassical growth setting with overlapping generations studied by Tirole (1985), asset bubbles can exist in an economy with endogenous growth provided they are not too large and that the growth rate in the equilibrium without bubbles exceeds the interest rate. Since the growth rate in the bubble-less equilibrium is endogenous, the existence condition reflects parameters of tastes and technology. We find that bubbles, when they exist, retard the growth of the economy, perhaps even in the long run, and reduce the welfare of all generations born after the bubble appears.

Date: 1992-02
Note: EFG
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Citations: View citations in EconPapers (6)

Published as Journal of Monetary Economics, vol 31, 1993, pp. 3-19

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Journal Article: Asset bubbles and endogenous growth (1993)
Working Paper: Asset Bubbles and Endogenous Growth (1992)
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