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Two Types of Asset Bubbles in a Small Open Economy

Author

Listed:
  • Takashi Kamihigashi

    (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN)

  • Ryonghun Im

    (Faculty of Economics, Kwansei Gakuin University, JAPAN)

Abstract

This paper examines the possibility of two types of rational asset price bubbles in a small open economy. Our model is a simple representative-agent model similar to the Lucas "tree" model except that the economy may be partially or completely open. There are goods, stock asset, pure bubbly asset, and loan markets, and we consider all possible cases depending on whether each of the markets is open or closed. We show that capital inflows give rise to asset bubbles. Moreover, two types of bubbles arise simultaneously in the economy if the goods market and loan markets are open.

Suggested Citation

  • Takashi Kamihigashi & Ryonghun Im, 2022. "Two Types of Asset Bubbles in a Small Open Economy," Discussion Paper Series DP2022-15, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2022-15
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2022-15.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Stock market bubbles; Pure bubbles; Small open economy;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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