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...

In this paper, we modelled the Colombian long run per capita economic growth (1925- 2005) using a Markov switching regime model with both fixed (FTP) and time-varying transition probabilities (TVTP) to explain regime changes in the economic growth. We found evidence of non-linearity in the per...