879 research outputs found
A Theory of Rational Housing Bubbles with Phase Transitions
We analyze equilibrium housing prices in an overlapping generations model
with perfect housing and rental markets. We prove that the economy exhibits a
two-stage phase transition: as the income of home buyers rises, the equilibrium
regime changes from fundamental only to coexistence of fundamental and bubbly
equilibria. With even higher incomes, fundamental equilibria disappear and
housing bubbles become inevitable. Even with low current incomes, housing
bubbles may emerge if home buyers have access to credit or have high future
income expectations. Contrary to widely-held beliefs, fundamental equilibria in
the coexistence region are inefficient despite housing being a productive
non-reproducible asset
Bubble economics
This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real assets such as stocks, housing, and land. The main message is that bubbles attached to real assets are fundamentally nonstationary phenomena related to unbalanced growth. We present a bare-bones model and draw three new insights: (i) the emergence of asset price bubbles is a necessity, instead of a possibility; (ii) asset pricing implications are markedly different between balanced growth of stationary nature and unbalanced growth of nonstationary nature; and (iii) asset price bubbles occur within larger historical trends involving shifts in industrial structure driven by technological innovation, including the transition from the Malthusian economy to the modern economy
Unique Equilibria in Models of Rational Asset Price Bubbles
Existing models of rational pure bubble models feature multiple (and often a
continuum of) equilibria, which makes model predictions and policy analysis
non-robust. We show that when the interest rate in the fundamental equilibrium
is below the economic growth rate (), a bubbly equilibrium with
exists. By injecting dividends that are vanishingly small relative to aggregate
income to the bubble asset, we can eliminate the fundamental steady state and
resolve equilibrium indeterminacy. We show the general applicability of
dividend injection through examples in overlapping generations and
infinite-horizon models with or without production or financial frictions
Bubble Economics
This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real assets such as stocks, housing, and land. The main message is that bubbles attached to real assets are fundamentally nonstationary phenomena related to unbalanced growth. We present a bare-bones model and draw three new insights: (i) the emergence of asset price bubbles is a necessity, instead of a possibility; (ii) asset pricing implications are markedly different between balanced growth of stationary nature and unbalanced growth of nonstationary nature; and (iii) asset price bubbles occur within larger historical trends involving shifts in industrial structure driven by technological innovation, including the transition from the Malthusian economy to the modern economy
The Effect of Social Distancing on the Reach of an Epidemic in Social Networks
How does social distancing affect the reach of an epidemic in social
networks? We present Monte Carlo simulation results of a capacity constrained
Susceptible-Infected-Removed (SIR) model. The key modelling feature is that
individuals are limited in the number of acquaintances that they can interact
with, thereby constraining disease transmission to an infectious subnetwork of
the original social network. While increased social distancing always reduces
the spread of an infectious disease, the magnitude varies greatly depending on
the topology of the network. Our results also reveal the importance of
coordinating social distancing policies at the global level. In particular, the
public health benefits from social distancing to a group (e.g., a country) may
be completely undone if that group maintains connections with outside groups
that are not following suit
Necessity of Rational Asset Price Bubbles in Two-Sector Growth Economies
We present plausible economic models in which an equilibrium with rational
asset price bubbles exists but equilibria with asset prices equal to
fundamental values do not. These economies feature multiple sectors with faster
economic growth than dividend growth. In our two-sector endogenous growth
model, entrepreneurs have access to a production technology subject to
idiosyncratic investment risk (tech sector) and trade a dividend-paying asset
(land). When leverage is relaxed beyond a critical value, the unique trend
stationary equilibrium exhibits a phase transition from the fundamental regime
to the bubbly regime with growth, implying the inevitability of bubbles with
loose financial conditions
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