Asset Bubbles, Endogenous Growth, and Financial Frictions

Tomohiro Hirano, Noriyuki Yanagawa

Research output: Contribution to journalArticlepeer-review


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. This implies that improving the financial market might enhance the possibility of bubbles. We also find that when the degree of pledgeability is relatively low, bubbles boost long-run growth. When it is relatively high, bubbles lower growth. Moreover, we examine the effects of bubbles bursting, and show that the effects depend on the degree of pledgeability, i.e., the quality of the financial system. Furthermore, we conduct a full welfare analysis of asset bubbles.
Original languageEnglish
Pages (from-to)406-443
Number of pages38
JournalReview of Economic Studies
Issue number1
Early online date7 Nov 2016
Publication statusPublished - Jan 2017

Cite this