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Asset Bubbles, Technology Choice, and Financial Crises

Author

Listed:
  • Takuma Kunieda

    (School of Economics, Kwansei Gakuin University)

  • Tarishi Matsuoka

    (Faculty of Urban Liberal Arts, Tokyo Metropolitan University)

  • Akihisa Shibata

    (Institute of Economic Research, Kyoto University)

Abstract

How does an economy fall into depression after an asset bubble bursts? To address this question, we extend Matsuyama’s (2007) overlapping-generations model with multiple technologies to a dynamic general equilibrium model with infinitely lived agents. Our analysis focuses on a case of two technologies: one with high productivity and another with low productivity. The crowd-in effect that asset bubbles have on capital accumulation occurs in equilibrium, in which the high interest rates resulting from asset bubbles crowd out low-productivity technology. When asset bubbles with high-productivity technology collapse, a depression follows.

Suggested Citation

  • Takuma Kunieda & Tarishi Matsuoka & Akihisa Shibata, 2017. "Asset Bubbles, Technology Choice, and Financial Crises," Discussion Paper Series 157, School of Economics, Kwansei Gakuin University, revised Feb 2017.
    • Handle: RePEc:kgu:wpaper:157
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    More about this item

    Keywords

    Asset bubbles; Crowd-in effect; Matsuyama model; Infinitely-lived agents;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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