We analyze the relationships between bubbles, capital flows, and economic activities in a rational bubble model with two large open economies. We establish a reinforcing relationship between global imbalances and bubbles. Capital flows from South to North facilitate the emergence and the size of bubbles in the North. Bubbles in the north in turn facilitate South-to-North capital flows. The model can simultaneously explain several stylized features of recent bubble episodes.
Ikeda, Daisuke, and Toan Phan.
"Asset Bubbles and Global Imbalances."
American Economic Journal: Macroeconomics,
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
International Business Cycles
Information and Market Efficiency; Event Studies; Insider Trading
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance