Asset Bubbles and Global Imbalances

46 Pages Posted: 16 Aug 2013 Last revised: 10 Mar 2018

Toan Phan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Daisuke Ikeda

Bank of England

Date Written: March 6, 2018

Abstract

We analyze the relationships between bubbles, capital flows, and economic activities in a rational bubble model with two large open economies. We establish a reinforcing relationship between global imbalances and bubbles. Capital flows from South to North facilitate the emergence and the size of bubbles in the North. Bubbles in the North in turn facilitate South-to-North capital flows. The model can simultaneously explain several stylized features of recent bubble episodes.

Keywords: rational bubble, financial friction, global imbalances, credit boom

JEL Classification: F30, F41, E44

Suggested Citation

Phan, Toan and Ikeda, Daisuke, Asset Bubbles and Global Imbalances (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=2310811 or http://dx.doi.org/10.2139/ssrn.2310811

Toan Phan (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Daisuke Ikeda

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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