We study the role of monetary policy when asset-price bubbles may form due to herd behavior in investment in an asset whose return is uncertain. To that aim, we build a simple general equilibrium model whose agents are households, entrepreneurs, and a central bank. Entrepreneurs receive private...

This paper proposes a stochastic model of investment with embodied technological progress, in which firms invest not only to expand the capacity as in Pindyck (1988) but also to replace old machines. The scrapping decision or the age of the oldest machine is then endogenous and evolves...

In this paper, we extend the usual models of irreversible investment under uncertainty by introducing the stock of public capital as an input for the private sector. Public investment takes place in a stochastic environment. Public capital then increases the productivity of private capital which...

In this paper, we propose to explain capital accumulation in a stochastic framework by taking into account the two main motives for investment. Specifically, firms invest to expand capacity and to replace old machines. The model considers irreversible investment under uncertainty and embodied...