UPF Economics and Business Working Paper 848
30 Pages Posted: 30 Nov 2005
Date Written: November 2003
This paper presents a stylized model of economic growth with bubbles. This model views asset price bubbles as a market-generated device to moderate the effects of frictions in financial markets, improving the allocation of investments and raising the capital stock and welfare. The model illustrates various channels through which asset price bubbles affect the incentives for innovation and economic reforms, and therefore, the rate of economic growth. The model also offers a new perspective on the effects of financial development on asset price bubbles and economic growth.
Keywords: Asset price bubbles, economic growth, financial frictions, innovations and reforms
JEL Classification: E32, O40, G10
Suggested Citation: Suggested Citation