Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-28T17:55:08.795Z Has data issue: false hasContentIssue false
  • English
  • Français

INCOME DISTRIBUTION BY AGE GROUP AND PRODUCTIVE BUBBLES

Published online by Cambridge University Press:  13 October 2020

Xavier Raurich  and
Thomas Seegmuller
Xavier Raurich*
Affiliation:
University of Barcelona
Thomas Seegmuller
Affiliation:
Aix Marseille University, CNRS and AMSE
*
Address correspondence to: Xavier Raurich, Department of Economics, University of Barcelona, Avinguda Diagonal, 696, 08034Barcelona, Spain. e-mail: [email protected]. Phone: (+34)934 024 333.
Get access Rights & Permissions [Opens in a new window]

Abstract

The aim of this paper is to study the role of the distribution of income by age group on the existence of speculative bubbles. A crucial question is whether this distribution may promote a bubble associated to a larger level of capital, that is a productive bubble. We address these issues in an overlapping generations model where agents live three periods and productive investment done in the first period of life is an illiquid investment whose return occurs in the following two periods. A bubble is a liquid speculative investment that facilitates intertemporal consumption smoothing. We show that the distribution of income by age group determines both the existence and the effect of bubbles on aggregate production. We also show that fiscal policy, by changing the distribution of income, may facilitate or prevent the existence of bubbles and may also modify the effect that bubbles have on aggregate production.

Keywords

BubbleEfficiencyIncome DistributionOverlapping Generations
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 3 , April 2022 , pp. 769 - 799
Copyright
© Cambridge University Press 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank two anonymous referees for their helpful suggestions and comments. This work has been carried out thanks to the financial support of the French National Research Agency, ANR-17-EURE-0020 and ANR-15-CE33-0001-01, and the Ministerio de Economía y Competitividad of the Government of Spain through grant RTI2018-093543-B-I00.

References

REFERENCES

Abel, A. B. (2001) Will bequests attenuate the predicted meltdown in stock prices when baby boomers. The Review of Economics and Statistics 83, 589–595.CrossRefGoogle Scholar
Abel, A. B., Mankiw, G. N., Summers, L. H. and Zeckhauser, R. J. (1989) Assessing dynamic efficiency: Theory and evidence. Review of Economic Studies 56, 1–19.CrossRefGoogle Scholar
Barlevy, G. (2015) Bubbles and fools. Economic Perspectives. Federal Reserve Bank of Chicago Q II, 54–76.Google Scholar
Bosi, S. and Seegmuller, T. (2010) On rational exuberance. Mathematical Social Sciences 59, 249–270.CrossRefGoogle Scholar
Caballero, R., Fahri, E. and Hammour, M. L. (2006) Speculative growth: Hints from the U.S. economy. American Economic Review 96, 1159–1192.CrossRefGoogle Scholar
de la Croix, D. and Michel, P. (2002) A Theory of Economic Growth. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Fahri, E. and Tirole, J. (2012) Bubbly liquidity. Review of Economic Studies 79, 678–706.Google Scholar
Geanakoplos, J., Magill, M. and Quinzii, M. (2004) Demography and the long-run predictability of the stock market. Brookings Papers on Economic Activity 1, 241–325.CrossRefGoogle Scholar
Hillebrand, M., Kikuchi, T. and Sakuragawa, M. (2018) Bubbles and crowding-in of capital via a savings glut. Macroeconomic Dynamics 22, 1238–1266.CrossRefGoogle Scholar
Hirano, T. and Yanagawa, N. (2017) Asset bubbles, endogenous growth, and financial frictions. The Review of Economic Studies 84, 406–443.CrossRefGoogle Scholar
Kamihigashi, T. (2008) The spirit of capitalism, stock market bubbles and output fluctuations. International Journal of Economic Theory 4, 3–28.CrossRefGoogle Scholar
Kocherlakota, N. (1992) Bubbles and constraints on debt accumulation. Journal of Economic Theory 57, 245–256.CrossRefGoogle Scholar
Kocherlakota, N. (2009) Bursting bubbles: Consequences and cures. Manuscript.Google Scholar
Koh, D., Santaeulalia-Llopis, R. and Zheng, Y. (2016) Labor Share and Intellectual Property Products Capital. Working paper Barcelona GSE 927.Google Scholar
Kunieda, T. and Shibata, A. (2017). Entrepreneurs, financiers and boom-bust cycles. Macroeconomic Dynamics 21, 785–816.CrossRefGoogle Scholar
Lucas, R. E. (2003) Macroeconomic priorities. American Economic Review 93, 1–14.CrossRefGoogle Scholar
Martin, A. and Ventura, J. (2012) Economic growth with bubbles. American Economic Review 102, 3033–3058.CrossRefGoogle Scholar
Martin, A. and Ventura, J. (2016) Managing credit bubbles. Journal of the European Economic Association 14, 753–789.CrossRefGoogle Scholar
Miao, J. and Wang, P. (2018) Asset bubbles and credit constraints. American Economic Review 108, 2590–2628.CrossRefGoogle Scholar
Raurich, X. and Seegmuller, T. (2019) On the interplay between speculative bubbles and productive investment. European Economic Review 111, 400–420.CrossRefGoogle Scholar
Samuelson, P. A. (1958) An exact consumption-loan model of interest with or without the social contrivance of money. Journal of Political Economy 66, 467–482.CrossRefGoogle Scholar
Tirole, J. (1985) Asset bubbles and overlapping generations. Econometrica 53, 1071–1100.CrossRefGoogle Scholar
Weil, P. (1987) Confidence and the real value of money in overlapping generations models. Quarterly Journal of Economics 102, 1–22.CrossRefGoogle Scholar