We study a dynamic economy where credit is limited by insufficient collateral and, as a result, investment and output are too low. In this environment, changes in investor sentiment or market expectations can give rise to credit bubbles, that is, expansions in credit that are backed not by...

We develop a stylized model of economic growth with bubbles. In this model, changes in investor sentiment lead to the appearance and collapse of macroeconomic bubbles or pyramid schemes. We show how these bubbles mitigate the effects of financial frictions. During bubbly episodes, unproductive...

Papua New Guinea’s economic growth has outpaced the majority of economies in Southeast Asia and the Pacific since 2007. Its development challenges, however, remain daunting, and it lags behind other countries in the region in terms of per capita income and achievement of the Millennium...