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Caballero, Ricardo J.,
Emmanuel Farhi, and
Mohamad L. Hammour. 2006. "Speculative Growth: Hints from the U.S. Economy."
,
96(4): 1159-1192.
Show Article Details
DOI: 10.1257/aer.96.4.1159
Abstract:We propose a framework for understanding episodes of vigorous economic expansion
and extreme asset valuations. We interpret this phenomenon as a highvaluation
equilibrium with a low cost of capital based on optimism about future
funding. The key ingredient for such equilibrium is feedback from increased growth
to a decline in the long-run cost of capital. This feedback arises when an expansion
comes with technological progress in the capital sector, when fiscal rules generate
procyclical fiscal surpluses, when the rest of the world has lower expansion
potential or high saving needs, and when financial constraints are relaxed by the
expansion itself. (JEL E22, O33, O41)
Additional links:
Link to Appendix
Authors:
Caballero, Ricardo J.
Farhi, Emmanuel
Hammour, Mohamad L.
JEL Classifications:
:
None
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