Sectoral Bubbles and Endogenous Growth

Pengfei Wang and Jianjun Miao

No 227, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: Stock price bubbles are often on productive assets and occur in a sector of the economy. In addition, their occurence is often accompanied by credit booms. Incorporating these features, we provide a two-sector endogenous growth model with credit-driven stock price bubbles. Bubbles have a credit easing effect in that they relax collateral constraints and improve investment efficiency. Sectoral bubbles also have a capital reallocation effect in the sense that bubbles in a sector attract more capital to be reallocated to that sector. Their impact on economic growth depends on the interplay between these two effects.

Date: 2012
New Economics Papers: this item is included in nep-dge and nep-fdg
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Working Paper: Sectoral Bubbles and Endogenous Growth (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:227

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