Fragile New Economy: The Rise of Intangible Capital and Financial Instability

61 Pages Posted: 25 Apr 2015 Last revised: 16 May 2019

See all articles by Ye Li

Ye Li

Ohio State University

Date Written: April 27, 2019


Intangible capital creates endogenous financial risk by inducing self-perpetuating savings gluts. Firms save for investments in intangibles that are unpledgeable but essential for the creation of new assets. Intermediaries profit from channeling firms’ savings into asset price bubbles. The bubbly value in turn stimulates firms’ asset creation and savings for intangibles. Fragility builds up as banks’ debt accumulates and funding cost declines. The model offers a coherent account of intangible investment, corporate savings, intermediary leverage, interest rate, and collateral asset price in the decades leading up to the Great Recession. It generates booms with rising downside risks and stagnant recessions.

Keywords: Intangible Capital, Asset Shortage, Savings Glut, Liquidity Creation, Bubble, Endogenous Risk, Interest rate, Financial Intermediation

JEL Classification: D92, E10, E32, E41, E44, E51, G12, G20, G31

Suggested Citation

Li, Ye, Fragile New Economy: The Rise of Intangible Capital and Financial Instability (April 27, 2019). Columbia Business School Research Paper No. 15-46; Fisher College of Business Working Paper No. 2018-03-019; Charles A. Dice Center Working Paper No. 2018-19. Available at SSRN: or

Ye Li (Contact Author)

Ohio State University ( email )

Fisher Hall 836, 2100 Neil Ave
Columbus, OH 43210
United States


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