Economic Growth with Bubbles

Jaume Ventura and Alberto Martin

No 445, Working Papers from Barcelona School of Economics

Abstract: We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibrium dispersion in the rates of return to investment. During bubbly episodes, unproductive investors demand bubbles while productive investors supply them. Because of this, bubbly episodes channel resources towards productive investment raising the growth rates of capital and output. The model also illustrates that the existence of bubbly episodes requires some investment to be dynamically inefficient: otherwise, there would be no demand for bubbles. This dynamic inefficiency, however, might be generated by an expansionary episode itself.

Keywords: Bubbles; dynamic inefficiency; economic growth; financial frictions; pyramid schemes (search for similar items in EconPapers)
JEL-codes: E32 E44 O40 (search for similar items in EconPapers)
Date: 2010-03
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Economic Growth with Bubbles (2012)
Working Paper: Economic growth with bubbles (2011)
Working Paper: Economic Growth with Bubbles (2010)
Working Paper: Economic Growth with Bubbles (2010)
Working Paper: Economic Growth with Bubbles (2010)
Working Paper: Economic Growth with Bubbles (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:445

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