Intangible Capital, Relative Asset Shortages and Bubbles

November 1, 2011

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Format: Chicago

Stefano Giglio, and Tiago Severo. Intangible Capital, Relative Asset Shortages and Bubbles, (USA: International Monetary Fund, 2011) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We analyze an overlapping generations economy with financial frictions and accumulation of both physical and intangible capital. The key difference between them is that intangible capital cannot be used as collateral for borrowing. As intangibles become more important in production, financial frictions tighten and equilibrium interest rates decline, creating the conditions for the emergence of rational bubbles. We also analyze the question of dynamic efficiency, demonstrating that, in the presence of financial frictions, neither the interest rate test nor the test proposed by Abel et al. (1989) are appropriate. Finally we show that, in general, rational bubbles are not Pareto improving in our framework.

Subject: Asset bubbles, Capital accumulation, Financial crises, Intangible capital, Labor, National accounts, Self-employment

Keywords: AMSZ condition, AMSZ test, Asset bubbles, Asset Shortages, Bubbleless economy, Capital accumulation, Dynamic Inefficiency, Economy capital keep, Financial Constraints, Financing constraint, Global, Intangible Capital, Interest rate, Physical capital, Rate of return, Rational Bubbles, Self-employment, Technological Change, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/271
Stock No:

WPIEA2011271
ISBN:

9781463925260
ISSN:

1018-5941

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