We study the interaction between productive and nonproductive savings in economies with endogenous long-run growth. As in the neoclassical growth setting with overlapping generations, asset bubbles can exist in an economy with endogenous growth provided that they are not too large and that the growth rate in the equilibrium without bubbles exceeds the interest rate. Here, the existence conditions for bubbles reflect parameters of tastes and technology. We find that bubbles, when they exist, retard the growth of the economy, perhaps even in the long run, and reduce the welfare of all generations born after the bubble appears.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics