We provide an infinite-horizon model of a production economy with bubbles, in which firms meet stochastic investment opportunities and face credit constraints. Capital is not only an input for production, but also serves as collateral. We show that bubbles on this reproducible asset may arise,...

We provide an infinite-horizon model of a production economy with bubbles, in which firms meet stochastic investment opportunities and face credit constraints. Capital is not only an input for production, but also serves as collateral. We show that bubbles on this reproducible asset may arise,...

This paper provides a model in which firms face idiosyncratic productivity shocks and endogenous credit constraints. We show that stock price bubbles can exist and allow capital to be reallocated to more productive firms. The collapse of bubbles tightens credit constraints and reduce total...