Switching bubbles: from outside to inside bubbles

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dc.contributor.author Basco Mascaro, Sergi
dc.date.accessioned 2017-08-28T09:39:08Z
dc.date.available 2018-08-01T22:00:05Z
dc.date.issued 2016-08-01
dc.identifier.bibliographicCitation Basco, C. (2016). Switching bubbles: From Outside to Inside Bubbles. European Economic Rewiev, v. 87, pp. 236-255.
dc.identifier.issn 0014-2921
dc.identifier.uri http://hdl.handle.net/10016/25139
dc.description.abstract The United States has recently experienced two asset price bubbles: the Dot-Corn and the Housing Bubbles. These bubbles had very different effects on investment and debt of manufacturing firms. In this paper I develop a framework to understand the differential effect of two types of rational bubbles. I distinguish between (i) Outside Bubbles, which I define as savers purchasing and selling costless assets not-attached to inputs of production and (ii) Inside Bubbles, which I define as savers buying an input of production (e.g., land or houses) only as a store of value. The model is an OLG economy with savers and entrepreneurs. Savers save to consume when they are old. Entrepreneurs can borrow to invest but they face a collateral constraint. In this environment, rational bubbles can emerge. I show that the size of an Inside Bubble is larger. I also find that when the economy switches from an Outside to an Inside Bubble, manufacturing (or non-housing) investment and debt is lower, consistent with the U.S. experience. Finally, I show that even though steady-state consumption is higher with an Outside Bubble, a social planner would prefer an Inside Bubble when the productivity of entrepreneurs is low. (C) 2016 Elsevier B.V. All rights reserved.
dc.description.sponsorship I acknowledge financial support from Banco de España and from the Ministerio de Economía y Competitividad (Spain), grant MDM 2014–0431.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.publisher Elsevier
dc.rights © Elsevier
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Collateral constraint
dc.subject.other Rational bubbles
dc.subject.other Investment
dc.subject.other Debt
dc.subject.other Overlapping generations
dc.subject.other Economic-growth
dc.subject.other Housing bubbles
dc.subject.other Model
dc.title Switching bubbles: from outside to inside bubbles
dc.type article
dc.subject.jel E22
dc.subject.jel E44
dc.subject.eciencia Economía
dc.identifier.doi https://doi.org/10.1016/j.euroecorev.2016.05.009
dc.rights.accessRights openAccess
dc.relation.projectID Gobierno de España. MDM 2014–0431
dc.type.version acceptedVersion
dc.identifier.publicationfirstpage 236
dc.identifier.publicationlastpage 255
dc.identifier.publicationtitle European Economic Review
dc.identifier.publicationvolume 87
dc.identifier.uxxi AR/0000018178
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