IDEAS home Printed from https://ideas.repec.org/p/kgu/wpaper/287.html
   My bibliography  Save this paper

Asset Bubbles and Aggregate Demand

Author

Listed:
  • Takeo Hori

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

  • Ryonghun Im

    (School of Economics, Kwansei Gakuin University)

Abstract

The collapse of asset bubbles leads to a demand-driven recession. When capital utilization is endogenous and capital creation is subject to idiosyncratic risks, aggregate demand significantly influences output, even with flexible prices. The bursting of bubbles causes a sharp decline in consumption and investment demand, forcing firms to reduce capital utilization. As a result, output and long-run growth contract suddenly and severely, pushing the economy into a demand recession. Nominal rigidities further deepen the downturn. Policies that stimulate aggregate demand, such as consumption and investment subsidies, can help prevent such recessions.

Suggested Citation

  • Takeo Hori & Ryonghun Im, 2025. "Asset Bubbles and Aggregate Demand," Discussion Paper Series 287, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:287
    as

    Download full text from publisher

    File URL: http://192.218.163.163/RePEc/pdf/kgdp287.pdf
    File Function: First version, 2025
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    asset bubbles; demand recession; capital utilization; uninsured idiosyncratic risks; flexible price; zero lower bound;
    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
    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kgu:wpaper:287. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Toshihiro Okada (email available below). General contact details of provider: https://edirc.repec.org/data/dekgujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.