We examine the effect of asset price bubbles in the Kiyotaki-Moore model. We show that the dynamic interactions between bubble-asset price, land price, and output generate powerful bubbly dynamics. The boom-bust cycles in bubble-asset price cause boom-crash cycles in the land market...

This paper theoretically investigates the relationship between asset price bubbles and bailout. We show that although bailout may mitigate adverse e¤ects of bubbles' bursting ex-post, it is more likely to cause asset price bubbles by encouraging risk-taking behavior ex-ante. In other words,...

This paper analyzes the effects of bubbles in an infinitely-lived agent model of endogenous growth with financial frictions and heterogeneous agents. We provide a complete characterization on the relationship between financial frictions and the existence of bubbles. Our model predicts that if...

This paper investigates the Laffer curves in Japan, based on a neoclassical growth model. It is found that while the labor tax rate is smaller than that at the peak of the Laffer curve, the capital tax rate is either very close to, or larger than, that at the peak of the Laffer curve. This...

Many authors argue that financial constraints have been tightened in several countries since the Great Recession in 2007–2009. To explain this, we construct a model in which borrowing constraints for firms are tightened as a result of mass default due to a bubble collapse. In Jermann and...

We develop a simple macroeconomic model that captures key features of a liquidity crisis. During a crisis, the supply of short-term loans vanishes, the interest rate rises sharply, and the level of economic activity declines. A crisis may be caused either by self-ful lling beliefs or by...

This paper investigates the monetary policy design for restoring equilibrium determinacy. Our interests are whether a central bank should respond to asset price fluctuations, and if so, what asset prices should be targeted. We show that a monetary policy response to the price of a productive...

Why are product prices in online markets dispersed in spite of very small search costs? To address this question, we construct a unique dataset from a Japanese price comparison site, which records price quotes offered by e-retailers as well as customers' clicks on products, which occur when they...

In this paper, we employ structural vector autoregression (VAR) with sign restrictions to identify the dynamic effects of fiscal policy shocks in Japan. We find that (i) an increase in government spending has positive effects on consumption and wages in the short run, but these effects are not...

This paper uses a simple heterogeneous-agent economy model to show that redistribution of wealth among heterogeneous agents can play a significant role in business cycle dynamics and financial crises. In an economy where firms with heterogeneous productivity operate under borrowing constraints,...