Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles
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arXiv
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| Hauptverfasser: | , , |
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| Format: | Preprint |
| Veröffentlicht: |
2022
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| _version_ | 1866916124270002176 |
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| author | Hirano, Tomohiro Jinnai, Ryo Toda, Alexis Akira |
| author_facet | Hirano, Tomohiro Jinnai, Ryo Toda, Alexis Akira |
| contents | We present a general equilibrium macro-finance model with a positive feedback loop between capital investment and land price. As leverage is relaxed beyond a critical value, through the financial accelerator, a phase transition occurs from balanced growth where land prices reflect fundamentals (present value of rents) to unbalanced growth where land prices grow faster than rents, generating land price bubbles. Unbalanced growth dynamics and bubbles are associated with financial loosening and technological progress. In an analytically tractable two-sector large open economy model with unique equilibria, financial loosening simultaneously leads to low interest rates, asset overvaluation, and top-end wealth concentration. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2211_13100 |
| institution | arXiv |
| publishDate | 2022 |
| record_format | arxiv |
| spellingShingle | Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles Hirano, Tomohiro Jinnai, Ryo Toda, Alexis Akira Theoretical Economics Mathematical Finance We present a general equilibrium macro-finance model with a positive feedback loop between capital investment and land price. As leverage is relaxed beyond a critical value, through the financial accelerator, a phase transition occurs from balanced growth where land prices reflect fundamentals (present value of rents) to unbalanced growth where land prices grow faster than rents, generating land price bubbles. Unbalanced growth dynamics and bubbles are associated with financial loosening and technological progress. In an analytically tractable two-sector large open economy model with unique equilibria, financial loosening simultaneously leads to low interest rates, asset overvaluation, and top-end wealth concentration. |
| title | Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles |
| topic | Theoretical Economics Mathematical Finance |
| url | https://arxiv.org/abs/2211.13100 |