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Bubbly fundamentals

Author

Listed:
  • Takeo Hori

    (Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology)

  • Ryonghun Im

    (School of Economics, Kwansei Gakuin University)

  • Hiroshi Nakaota

    (Faculty of Economics, Osaka University of Economics)

Abstract

Increases in the price-to-dividend ratio (PDR) have been observed during bubble periods. However, in the 2010s, asset prices have surged to bubble-era levels without a rise in the PDR. Based on this observation, we construct a macroeconomic model in which asset prices can be high or low under a constant PDR. In both equilibria, asset prices are entirely determined by the sum of expected future dividends and influence macroeconomic performance. The high asset price stimulates capital accumulation.

Suggested Citation

  • Takeo Hori & Ryonghun Im & Hiroshi Nakaota, 2024. "Bubbly fundamentals," Discussion Paper Series 278, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:278
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    More about this item

    Keywords

    asset bubbles; fundamental value; credit constraints; self-fulfilling expectation; multiple equilibria;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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