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Growth-Enhancing Bubbles

Jacques Olivier
International Economic Review
Vol. 41, No. 1 (Feb., 2000), pp. 133-151
Stable URL: http://www.jstor.org/stable/2648826
Page Count: 19
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Growth-Enhancing Bubbles
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Abstract

This article challenges the conventional wisdom that speculation in financial markets reduces long-run growth. It shows that the real impact of a (rational deterministic) speculative bubble depends on the type of asset that is being speculated on. Speculative bubbles on equity raise the market value of firms, thus encouraging entrepreneurship, firm creation, investment, and growth. On the other hand, speculation on other types of assets is shown to be unambiguously growth-impairing. The model can explain some stylized facts about financial development and growth. Finally, regulatory implications are discussed briefly.

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