Bubble Economics

Tomohiro Hirano, Alexis Akira Toda

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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.
Original languageEnglish
Article number102944
Number of pages17
Early online date23 Jan 2024
Publication statusPublished - Apr 2024


  • Bubbles attached to real assetsNecessity versus possibilityNonstationarityTechnological progressUnbalanced growth

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