Economics at your fingertips  

Asset Price Bubbles and the Distribution of Firms

Haozhou Tang
Additional contact information
Haozhou Tang: Bank of Mexico

No 362, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the macroeconomic effects of asset bubbles from the perspective of firms. I introduce bubbles into a model with firm heterogeneity and firm entry and exit: in a bubbly equilibrium, the price of a firm contains a fundamental component, which represents the net present value of profits, and a bubble component. I show that bubbles act as subsidies to new firms and have the following implications: i) bubbles lower the average productivity and profitability of new firms; ii) bubbles increase the number of firms, wages, and aggregate output; iii) along transition dynamics, bubbles subsidize new firms rather than incumbents, aggravating misallocation and therefore depressing aggregate productivity. The model can be used to discriminate the alternative explanations of business cycles, like shocks to productivity, and shocks to financial frictions. Firm-level evidence suggests that the Spanish economic expansion before the global financial crisis can be well interpreted as a consequence of a bubble boom, and the recession as an outcome of a bubble crash.

New Economics Papers: this item is included in nep-bec, nep-dge and nep-fdg
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

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:

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

Page updated 2019-01-31
Handle: RePEc:red:sed018:362