6533b86dfe1ef96bd12ca1cf
RESEARCH PRODUCT
Bubbles and Crowding-in of Capital via a Savings Glut
Marten HillebrandMasaya SakuragawaTomoo Kikuchisubject
Economics and EconometricsLabour economicsCapital investmentEconomicsjel:E21jel:E44Monetary economicsE21 [JEL Classifications]Margin (finance)savings glutrational bubbles0502 economics and businessEconomicsddc:330050207 economicsConstraint (mathematics)050205 econometrics E32Crowding inTime pathfinancial frictions05 social sciencesjel:E32Investment (macroeconomics)Capital (economics)E44crowding-inrational bubblessavings glutcrowding-infinancial frictionsE21description
This paper uncovers a mechanism by which bubbles crowd in capital investment. If capital formation is initially depressed by a binding credit constraint, a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional savings, which are channeled to expand investment at the extensive margin, leading to permanently higher capital, output, and wages. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2017-07-04 |