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This paper proposes a framework to study contagious stock bubbles in a multi-sector production economy with heterogeneous investment technologies. Due to financial frictions, stock bubbles arise endogenously that help inject additional liquidity. Due to financial linkages, the existence of...
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We construct a model for Bitcoin-like cryptocurrency as risky and costly bubbles in an infinite-horizon production economy with incomplete markets. This model is consistent with the following facts: i) the surging Bitcoin market presents enormous volatility, and ii) its price dynamics are...
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We show the competing effects of a housing bubble on the real economy by developing a two-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their houses to obtain financing, so a housing bubble helps firms obtain credit to finance their investment and...
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There is increasing evidence that the vibrant financial industry has generated a misallocation of human capital between the manufacturing sector and the service sector. In addition, growth in the financial sector has usually been accompanied by bubble booms. Thus, this paper advances a greater...
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We provide a theory to investigate the implications of time-varying bailout policy for rational bubbles in an infinite-horizon production economy. In particular, we ask two questions. First, should the government bail out asset bubbles? Second, if yes, how? In our model, entrepreneurs face...
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