Asset Bubbles and Endogenous Growth

21 Pages Posted: 25 May 2006

See all articles by Noriyuki Yanagawa

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: February 1992

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.

Suggested Citation

Yanagawa, Noriyuki and Grossman, Gene M., Asset Bubbles and Endogenous Growth (February 1992). NBER Working Paper No. w4004. Available at SSRN: https://ssrn.com/abstract=226888

Noriyuki Yanagawa (Contact Author)

University of Tokyo - Faculty of Economics ( email )

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Tokyo 113-0033
Japan

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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609-258-4823 (Phone)
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Princeton University - Department of Economics ( email )

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United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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