Capital Bubbles, Interest Rates, and Investment in a Small Open Economy

Tomoo Kikuchi, Athakrit Thepmongkol

研究成果: Article査読

抄録

We model a bubble in a productive asset (capital) on an explosive path, which diverges from the fundamental equilibrium and bursts with a positive probability. When the bubble grows, the small open economy borrows from the the world economy to finance investment and production, and banks charge the risk of the bubble bursting as an interest rate spread to debtors. Consequently, the interest rate spread widens as loans are increasingly backed by the bubble. When the bubble bursts, defaults cause a sudden stop of credit inflow from the world economy, investment falls, and the interest rate spread vanishes.

本文言語English
ページ(範囲)2085-2109
ページ数25
ジャーナルJournal of Money, Credit and Banking
52
8
DOI
出版ステータスPublished - 2020 12
外部発表はい

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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