Presenter: Ganna Prykhodko

Location: 368A Heady Hall

Title: Everything Bubble

Abstract: How are bubbles in different types of assets interrelated? We investigate the co-existence of two principally different bubble types: stochastic pure bubbles with no fundamental value (cryptocurrencies) and stock price bubbles (where bubbles cannot be traded separately from the firm’s fundamentals). This paper studies a production economy with a continuum of infinitely-lived agents and a continuum of firms. Each period, firms meet heterogeneous opportunities to invest in their capital and invest only when their multipliers are above a certain efficiency cutoff. They face endogenous credit constraints, and the presence of bubbles in their stock market valuations increases their debt limit, while pure bubbles enhance internal financing. We show that the simultaneous presence of both bubble types may lead to higher growth and a higher bubbly share in the economy.