Institute of Economic Research, Hitotsubashi University
Abstract
Accepted at The Review of Economic StudiesThis paper analyzes the existence and the effects of bubbles in an endogenous growth model with nancial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the nancial market might increase the potential for asset bubbles. Moreover, when the degree of pledgeability is relatively low, bubbles boost long-run growth; when it is relatively high, bubbles lower growth. Furthermore, we examine the effects of a bubble burst, and show that the effects depend on the degree of pledgeability, i.e., the quality of the nancial system. Finally, we conduct a full welfare analysis of asset bubbles.基盤研究(S) = Grants-in-Aid for Scientific Research (S)89 p
