This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range. This implies that improving the financial market might enhance...

This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range. This suggests that improving the financial market might enhance...

We study a regime-switching recurrent bubble model with endogenous growth. The economy experiences both bubbly and bubbleless regimes recurrently. Infinitely lived households expect future bubbles, which crowds out investment and reduces economic growth. Because realized bubbles crowd in...