Asset Bubbles, Endogenous Growth, and Financial Frictions

Tomohiro Hirano and Noriyuki Yanagawa

No 36, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the financial 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 financial system. Finally, we conduct a full welfare analysis of asset bubbles.

Keywords: Asset Bubbles; Endogenous Growth; Financial Frictions (search for similar items in EconPapers)
Pages: 82 pages
Date: 2016-02
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Related works:
Journal Article: Asset Bubbles, Endogenous Growth, and Financial Frictions (2017)
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2016)
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2010)
Working Paper: Asset Bubbles, Endogenous Growth, and Financial Frictions (2010)
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