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  3. American Economic Journal: Macroeconomics
  4. April 2023
  5. Bubbles, Crashes, and Economic Growth: Theory and Evidence

Bubbles, Crashes, and Economic Growth: Theory and Evidence

  • Pablo A. Guerron-Quintana
  • Tomohiro Hirano
  • Ryo Jinnai
American Economic Journal: Macroeconomics
vol. 15, no. 2, April 2023
(pp. 333-71)
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Abstract

We analyze the ups and downs in economic growth in recent decades by constructing a model with recurrent bubbles, crashes, and endogenous growth. Once realized, bubbles crowd in investment and stimulate economic growth, but expectation about future bubbles crowds out investment and reduces economic growth. We identify bubbly episodes by estimating the model using the US data. Counterfactual simulations suggest that the IT and housing bubbles not only caused economic booms but also lifted US GDP by almost 2 percentage points permanently, but the economy could have grown even faster if people had believed that asset bubbles would never arise.

Citation

Guerron-Quintana, Pablo A., Tomohiro Hirano, and Ryo Jinnai. 2023. "Bubbles, Crashes, and Economic Growth: Theory and Evidence." American Economic Journal: Macroeconomics, 15 (2): 333-71. DOI: 10.1257/mac.20220015

Additional Materials

JEL Classification

  • E22 Investment; Capital; Intangible Capital; Capacity
  • E23 Macroeconomics: Production
  • E32 Business Fluctuations; Cycles
  • E44 Financial Markets and the Macroeconomy
  • G14 Information and Market Efficiency; Event Studies; Insider Trading
  • R31 Housing Supply and Markets
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