Growth-Enhancing Bubbles

Posted: 18 Oct 2000

See all articles by Jacques Olivier

Jacques Olivier

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR)


This article challenges the conventional wisdom that speculation in financial markets reduces long-run growth. It shows that the real impact of a (rational deterministic) speculative bubble depends on the type of asset that is being speculated on. Speculative bubbles on equity raise the market value of firms, thus encouraging entrepreneurship, firm creation, investment, and growth. On the other hand, speculation on other types of assets is shown to be unambiguously growth-impairing. The model can explain some stylized facts about financial development and growth. Finally, regulatory implications are discussed briefly.

Suggested Citation

Olivier, Jacques, Growth-Enhancing Bubbles. International Economic Review, Vol. 41, No. 1, Feb. 2000. Available at SSRN:

Jacques Olivier (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
+33 1 3967 7297 (Phone)
+33 1 3967 7085 (Fax)

Centre for Economic Policy Research (CEPR)

United Kingdom

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