We develop a dynamic general equilibrium growth model with infinitely lived heterogeneous agents to describe a self-fulfilling financial crisis accompanied by an asset bubble burst as a rational expectations equilibrium. Because of financial market imperfections, asset bubbles appear under mild...

A dynamic general equilibrium model with infinitely lived entrepreneurs and financiers is developed to investigate a possible mechanism that explains business cycles and a financial crisis. The highest growth rate is achievable only if financiers coexist with entrepreneurs, given a certain...

This paper introduces consumption externalities into an endogenous growth model of common capital accumulation and characterizes balanced growth equilibria. Contrary to the standard argument in previous studies, we show that the growth rate in a feedback Nash equilibrium can be higher than that...

This paper introduces consumption externalities into an endogenous growth model of common capital accumulation and characterizes balanced growth equilibria. Contrary to the standard argument in previous studies, we show that the growth rate in a feedback Nash equilibrium can be higher than that...

Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic...

The current account in developed countries is highly persistent and volatile in comparison to output growth. The standard intertemporal current account model with rational expectations (RE) fails to account for the observed current account dynamics together with persistent changes in...

A tractable model with infinitely lived agents is constructed for the examination of bubbles and unemployment. It is demonstrated that the presence of bubbles stimulates capital accumulation and reduces unemployment. The presence of bubbles also changes the effects of government policies that...

This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy. Applying a neoclassical production function, we demonstrate that as financial frictions are mitigated, the economy loses stability and a ip bifurcation occurs at a certain level...