Bubbles and capital flows

Jaume Ventura

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper presents a stylized model of international trade and asset price bubbles. Its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world. These bubbles absorb local savings, eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries. Through this channel, bubbles act as a substitute for international capital flows, improving the international allocation of investment and reducing rate-of-return differentials across countries. This view of asset price bubbles could eventually provide a simple account of some real world phenomenae that have been difficult to model before, such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries.

Keywords: Asset price bubbles; international capital flows (search for similar items in EconPapers)
JEL-codes: F21 F36 F43 (search for similar items in EconPapers)
Date: 2002-10, Revised 2010-03
New Economics Papers: this item is included in nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Bubbles and capital flows (2004)
Working Paper: Bubbles and Capital Flows (2002)
Working Paper: Bubbles and Capital Flows (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:846

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