American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Bubbly Recessions
American Economic Journal: Macroeconomics
vol. 12,
no. 4, October 2020
(pp. 33–70)
Abstract
We develop a tractable bubbles model with financial friction and downward wage rigidity. Competitive speculation in risky bubbles can result in excessive investment booms that precede inefficient busts, where post- bubble aggregate economic activities collapse below the pre-bubble trend. Risky bubbles can reduce ex ante social welfare, and leaning-against-the-bubble policies that balance the boom-bust trade-off can be warranted. We further show that the collapse of a bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent recession, such as the Japanese "lost decades."Citation
Biswas, Siddhartha, Andrew Hanson, and Toan Phan. 2020. "Bubbly Recessions." American Economic Journal: Macroeconomics, 12 (4): 33–70. DOI: 10.1257/mac.20180083Additional Materials
JEL Classification
- E22 Investment; Capital; Intangible Capital; Capacity
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- L26 Entrepreneurship
There are no comments for this article.
Login to Comment