Are Bubbles Bad? Is a higher debt target for the Euro-zone desirable?

Bubbles are usually viewed as a threat to financial stability. This paper takes a more nuanced view. The world economy is going through an episode of Secular Stagnation, where the equilibrium rate of return on capital r is below the growth rate of the economy g. As is well known, rational bubbles are sustainable when r?g in a steady state equilibrium. Bubbles can then implement a dynamically efficient equilibrium. We show that from a structural point of view, bubbles, Pay-As-You-Go (PAYG) pensions and sovereign debt are perfect substitutes. However, when dealing with unexpected short run fluctuations in investment, sovereign debt is far more efficient than bubbles in shifting consumption over time and in risk sharing between generations. An increase in sovereign debt is therefore an efficient response to Secular Stagnation. Instead, the current Stability and Growth Pact for the Euro-zone embarks on an opposite course

Secular Stagnation, Rational Bubbles, and Fiscal Policy

It is well known that rational bubbles can be sustained in balanced growth path of a deterministic economy when the return to capital r is equal to the growth rate g. When there is a lack of stores of value, bubbles can implement an efficient allocation. This paper considers a world where r fluctuates over time due to shocks to the marginal productivity of capital. Then, bubbles further efficiency, though they cannot implement first best. While bubbles can only be sustained when r = g in a deterministic economy, r > g "on average" in a stochastic economy. Fiscal policy improves welfare by adding an extra asset. Where only the elderly contribute to shifting resources between investment and consumption in a bubbly economy, fiscal policy allows part of that burden to be shifted to the young. Contrary to common wisdom, trade in bubbly assets implements intergenerational transfers, while fiscal policy implements intragenerational transfers. Hence, while bubbles and fiscal policy are perfect substitutes in the deterministic economy, fiscal policy dominates bubbles in a stochastic economy. For plausible parameter values, a higher degree of dynamic inefficiency should lead to a higher sovereign debt

Genome-wide association studies of autoimmune vitiligo identify 23 new risk loci and highlight key pathways and regulatory variants

Vitiligo is an autoimmune disease in which depigmented skin results from the destruction of melanocytes1, with epidemiological association with other autoimmune diseases2. In previous linkage and genome-wide association studies (GWAS1 and GWAS2), we identified 27 vitiligo susceptibility loci in patients of European ancestry. We carried out a third GWAS (GWAS3) in European-ancestry subjects, with augmented GWAS1 and GWAS2 controls, genome-wide imputation, and meta-analysis of all three GWAS, followed by an independent replication. The combined analyses, with 4,680 cases and 39,586 controls, identified 23 new significantly associated loci and 7 suggestive loci. Most encode immune and apoptotic regulators, with some also associated with other autoimmune diseases, as well as several melanocyte regulators. Bioinformatic analyses indicate a predominance of causal regulatory variation, some of which corresponds to expression quantitative trait loci (eQTLs) at these loci. Together, the identified genes provide a framework for the genetic architecture and pathobiology of vitiligo, highlight relationships with other autoimmune diseases and melanoma, and offer potential targets for treatment