Sectoral Bubbles and Endogenous Growth

36 Pages Posted: 9 Apr 2012

See all articles by Jianjun Miao

Jianjun Miao

Boston University - Department of Economics

Pengfei Wang

Peking University HSBC Business School

Date Written: January 9, 2012

Abstract

Stock price bubbles are often on productive assets and occur in a sector of the economy. In addition, their occurrence 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.

Keywords: Bubbles, Collateral Constraints, Externality, Economic Growth, Capital Reallocation, Multiple Equilibria

JEL Classification: D92, E22, E44, G1

Suggested Citation

Miao, Jianjun and Wang, Pengfei, Sectoral Bubbles and Endogenous Growth (January 9, 2012). Available at SSRN: https://ssrn.com/abstract=2036597 or http://dx.doi.org/10.2139/ssrn.2036597

Jianjun Miao (Contact Author)

Boston University - Department of Economics ( email )

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Boston, MA 02215
United States
617-353-6675 (Phone)

HOME PAGE: http://people.bu.edu/miaoj

Pengfei Wang

Peking University HSBC Business School ( email )

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