2000/02/01 by Jacques Olivier · 2 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Economic theories and models #State Capitalism and Financial Governance #Economic Theory and Policy
paper · doi:10.1111/1468-2354.00058
This article challenges the conventional wisdom that speculation in financial markets reduces long‐run growth. It shows that the real impact of a (rational deterministic) speculative bubble depends on the type of asset that is being speculated on. Speculative bubbles on equity raise the market value of firms, thus encouraging entrepreneurship, firm creation, investment, and growth. On the other hand, speculation on other types of assets is shown to be unambiguously growth‐impairing. The model can explain some stylized facts about financial development and growth. Finally, regulatory implications are discussed briefly.