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Several papers explain why asset bubbles are observed when growth is large. These papers differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. We compare the liquidity and collateral roles of bubbles in an overlapping generations model. When the bubble is deterministic, the equilibrium is identical under these two roles, implying that the same mechanism explains the crowding-in effect of the bubble on growth. With stochastic bubbles, growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to capital investors.
We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. The multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases housing prices, which can still be characterized by large fluctuations.
We analyze the effects of a debt relief, that is, a decrease in public debt of a low-income country financed by a high-income country, on environmental quality. Under perfect mobility of assets, the debt relief increases the overall capital stock, and environmental quality when public abatements are sufficiently efficient. Welfare in both countries can also improve. Under a weak mobility of assets, capital does no more increase in the richest country, but environmental quality can improve. This comes from a crowding-out effect of debt in the high-income country, which does no more take place when the mobility of assets is significant.
The aim of this paper is to study the role of the distribution of income by age group on the existence of speculative bubbles. A crucial question is whether this distribution may promote a bubble associated to a larger level of capital, that is a productive bubble. We address these issues in an overlapping generations model where agents live three periods and productive investment done in the first period of life is an illiquid investment whose return occurs in the following two periods. A bubble is a liquid speculative investment that facilitates intertemporal consumption smoothing. We show that the distribution of income by age group determines both the existence and the effect of bubbles on aggregate production. We also show that fiscal policy, by changing the distribution of income, may facilitate or prevent the existence of bubbles and may also modify the effect that bubbles have on aggregate production.
This paper analyzes the effect of a pay-as-you-go pension system on the evolution of capital and pollution, and on the efficiency of an environmental versus health policy. In an overlapping generations model, we introduce endogenous longevity that depends on pollution and health expenditures. Global dynamics may display multiple balanced growth paths (BGPs). We show that by discouraging savings, a policy that promotes the pension system enlarges the environmental poverty trap. More surprisingly, the environmental policy has contrasting effects according to the significance of the pension system. If it has a small size, a more environmentally-friendly policy enlarges the environmental poverty trap and leads to a rise in capital over pollution at the highest stationary equilibrium. In contrast, in economies where intergenerational solidarity is well developed, capital over pollution decreases at the highest BGP. In such a case, the environmental policy does not necessarily lead to a better longevity and growth.
This paper is an introduction to the special issue of Mathematical Social Sciences on Advances in growth and macroeconomic dynamics in memory of Carine Nourry.
This paper is a tribute for Carine Nourry for this special issue of Mathematical Social Sciences.
The relationship between public debt, growth and volatility is investigated in a Barro-type (1990) endogenous growth model, with three main features: we consider a small open economy, international borrowing is constrained and households have taste for domestic public debt. Therefore, capital, public debt and the international asset are not perfect substitutes and the economy is characterized by an investment multiplier. Whatever the level of the debt-output ratio, the existing BGP features expectation-driven fluctuations. If the debt-output ratio is low enough, there is also a second BGP with a lower growth rate. Hence, a lower debt does not stabilize the economy with credit market imperfections. However, a high enough taste for domestic public debt may rule out the BGP with lower growth. This means that if the share of public debt held by domestic households is high enough, global indeterminacy does not occur.
This paper analyzes the link between asset bubbles, endogenous labor and capital. First, we explicitly and theoretically derive the conditions to have a crowding-in effect of the bubble, i.e. higher levels of capital and labor. Second, the utility function we consider shows that this result does not require an arbitrarily high elasticity of intertemporal substitution in consumption.
We study whether fiscal policies, especially public debt, can help to curb the macroeconomic and health consequences of epidemics. Our approach is based on three main features: we introduce the dynamics of epidemics in an overlapping generations model to take into account that old people are more vulnerable; people are more easily infected when pollution is high; public spending in health care and public debt can be used to tackle the effects of epidemics. We show that fiscal policies can promote convergence to a stable disease-free steady state. When public policies are not able to permanently eradicate the epidemic, public debt, and income transfers could reduce the number of infected people and increase capital and GDP per capita. As a prerequisite, pollution intensity should not be too high. Finally, we define a household subsidy policy that eliminates income and welfare inequalities between healthy and infected individuals.