Bubbly Recessions
By: Biswas, Siddhartha, Hanson, Andrew and Phan, Toan
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Material type: 
BookPublisher: American Economic Journal Macroeconomics Description: 12(4), Oct, 2020: p.33-70.Subject(s): Employment; Unemployment; Wages; Intergenerational income distribution; Aggregate human capital; Aggregate labor productivity
In:
American Economic Journal MacroeconomicsSummary: We develop a tractable bubbles model with financial friction and downward wage rigidity. Competitive speculation in risky bubbles can result in excessive investment booms that precede inefficient busts, where post- bubble aggregate economic activities collapse below the pre-bubble trend. Risky bubbles can reduce ex ante social welfare, and leaning-against-the-bubble policies that balance the boom-bust trade-off can be warranted. We further show that the collapse of a bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent recession, such as the Japanese "lost decades."- Reproduced
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 12(4), Oct, 2020: p.33-70 | Available | AR124536 |
We develop a tractable bubbles model with financial friction and downward wage rigidity. Competitive speculation in risky bubbles can result in excessive investment booms that precede inefficient busts, where post- bubble aggregate economic activities collapse below the pre-bubble trend. Risky bubbles can reduce ex ante social welfare, and leaning-against-the-bubble policies that balance the boom-bust trade-off can be warranted. We further show that the collapse of a bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent recession, such as the Japanese "lost decades."- Reproduced
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