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Are the Liquidity and Collateral Roles of Asset Bubbles Different?

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  • LISE CLAIN‐CHAMOSSET‐YVRARD
  • XAVIER RAURICH
  • THOMAS SEEGMULLER

Abstract

Several papers explain why asset bubbles are observed when growth is large. These papers differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. We compare the liquidity and collateral roles of bubbles in an overlapping generations model. When the bubble is deterministic, the equilibrium is identical under these two roles, implying that the same mechanism explains the crowding‐in effect of the bubble on growth. With stochastic bubbles, growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to capital investors.

Suggested Citation

  • Lise Clain‐Chamosset‐Yvrard & Xavier Raurich & Thomas Seegmuller, 2023. "Are the Liquidity and Collateral Roles of Asset Bubbles Different?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1443-1473, September.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:6:p:1443-1473
    DOI: 10.1111/jmcb.13007
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    Cited by:

    1. Hirano, Tomohiro & Toda, Alexis Akira, 2024. "Bubble economics," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    2. Clain-Chamosset-Yvrard, Lise & Raurich, Xavier & Seegmuller, Thomas, 2024. "Entrepreneurship, growth and productivity with bubbles," Journal of Macroeconomics, Elsevier, vol. 81(C).
    3. Chenxi Wang, 2023. "Asset bubbles and frictional intermediation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(3), pages 921-961, October.

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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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