Bubble economics

Hirano, Tomohiro and Toda, Alexis Akira (2024) Bubble economics. Journal of Mathematical Economics, 111. ISSN 0304-4068

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Abstract

This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real assets such as stocks, housing, and land. The main message is that bubbles attached to real assets are fundamentally nonstationary phenomena related to unbalanced growth. We present a bare-bones model and draw three new insights: (i) the emergence of asset price bubbles is a necessity, instead of a possibility; (ii) asset pricing implications are markedly different between balanced growth of stationary nature and unbalanced growth of nonstationary nature; and (iii) asset price bubbles occur within larger historical trends involving shifts in industrial structure driven by technological innovation, including the transition from the Malthusian economy to the modern economy.

Item Type:	Article
Additional Information:	© 2024 The Author(s)
Divisions:	Centre for Macroeconomics
Subjects:	T Technology Q Science > QA Mathematics H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G10 - General
Date Deposited:	16 Feb 2024 11:54
Last Modified:	01 Apr 2024 07:19
URI:	http://eprints.lse.ac.uk/id/eprint/122042

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