Asset Bubbles, Endogenous Growth, and Financial Frictions

89 Pages Posted: 5 May 2014 Last revised: 13 Nov 2016

See all articles by Tomohiro Hirano

Tomohiro Hirano

Royal Holloway, U of London and Center for Macroeconomics at the London School of Economics and the Canon Institute for Global Studies

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2016

Abstract

This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range. This implies that improving the financial market might enhance the possibility of bubbles. We also find that when the degree of pledgeability is relatively low, bubbles boost long-run growth. When it is relatively high, bubbles lower growth. Moreover, we examine the effects of bubbles bursting, and show that the effects depend on the degree of pledgeability, i.e., the quality of the financial system. Furthermore, we conduct a full welfare analysis of asset bubbles.

Keywords: Asset Bubbles, Endogenous Growth, Pledgeability, Bubble Burst, Welfare Effect of Bubbles

Suggested Citation

Hirano, Tomohiro and Yanagawa, Noriyuki, Asset Bubbles, Endogenous Growth, and Financial Frictions (October 2016). Available at SSRN: https://ssrn.com/abstract=2432788 or http://dx.doi.org/10.2139/ssrn.2432788

Tomohiro Hirano (Contact Author)

Royal Holloway, U of London and Center for Macroeconomics at the London School of Economics and the Canon Institute for Global Studies ( email )

London
United Kingdom

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
879
Abstract Views
6,729
rank
22,006
PlumX Metrics