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Asset Price Bubbles and Technological Innovation

Lookup NU author(s): Dr Jong ShinORCiD

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This is the authors' accepted manuscript of an article that has been published in its final definitive form by Wiley-Blackwell Publishing, Inc., 2018.

For re-use rights please refer to the publisher's terms and conditions.

Abstract

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical “lean against the wind” credit policy.

Publication metadata

Author(s): Shin JK, Subramanian C

Publication type: Article

Publication status: Published

Journal: Economic Inquiry

Year: 2018

Volume: 57

Issue: 1

Pages: 482-497

Print publication date: 01/01/2019

Online publication date: 16/07/2018

Acceptance date: 25/04/2018

Date deposited: 21/07/2018

ISSN (print): 0095-2583

ISSN (electronic): 1465-7295

Publisher: Wiley-Blackwell Publishing, Inc.

URL: https://doi.org/10.1111/ecin.12695

DOI: 10.1111/ecin.12695

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