Show simple item record

dc.contributor.authorTeulings, C. N.
dc.date.accessioned2016-08-11T15:25:12Z
dc.date.available2016-08-11T15:25:12Z
dc.date.issued2016-07-27
dc.identifier.otherCWPE1643
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/257142
dc.description.abstractBubbles are usually viewed as a threat to financial stability. This paper takes a more nuanced view. The world economy is going through an episode of Secular Stagnation, where the equilibrium rate of return on capital r is below the growth rate of the economy g. As is well known, rational bubbles are sustainable when r?g in a steady state equilibrium. Bubbles can then implement a dynamically efficient equilibrium. We show that from a structural point of view, bubbles, Pay-As-You-Go (PAYG) pensions and sovereign debt are perfect substitutes. However, when dealing with unexpected short run fluctuations in investment, sovereign debt is far more efficient than bubbles in shifting consumption over time and in risk sharing between generations. An increase in sovereign debt is therefore an efficient response to Secular Stagnation. Instead, the current Stability and Growth Pact for the Euro-zone embarks on an opposite course.en
dc.publisherFaculty of Economics
dc.relation.ispartofseriesCambridge Working Papers in Economics
dc.rightsAll Rights Reserveden
dc.rights.urihttps://www.rioxx.net/licenses/all-rights-reserved/en
dc.subjectbubbles
dc.subjectdynamic efficiency
dc.subjectfiscal policy
dc.subjectSecular Stagnation
dc.titleAre Bubbles Bad? Is a higher debt target for the Euro-zone desirable?
dc.typeWorking Paper
dc.identifier.doi10.17863/CAM.1070


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record