investment, but allow for harmful bubbles. Aggressive fiscal policy can prevent bubbles. …

Bubbles are usually viewed as a threat to financial stability. This paper takes a more nuanced view. The world economy … rate of the economy g. As is well-known, rational bubbles are sustainable when r ≤ g in a steady-state equilibrium. Bubbles … can then implement a dynamically efficient equilibrium. We show that from a structural point of view, bubbles, Pay …