Author(s)

Atsushi Motohashi

Development Bank of Japan Inc., Tokyo, Japan.

This paper analyzes the characteristics of asset bubbles in a small open economy. First, we show that financial globalization relaxes the existence conditions for asset bubbles. This result implies that more countries may experience asset bubbles in a global economy. Second, we show that the effect of asset bubbles in a global economy is larger than in a closed economy. In particular, countries with high financial friction experience a high economic growth rate before a foreign bubble bursts and they are subjected to more negative influence after that. This conclusion implies that financial globalization may cause large economic movements before and after a bubble bursts.

Asset Bubbles, Endogenous Growth, Financial Friction, Open Economy

Motohashi, A. (2016) Economic Growth with Asset Bubbles in a Small Open Economy. Theoretical Economics Letters, 6, 942-961. doi: 10.4236/tel.2016.65097.