Are the Liquidity and Collateral Roles of Asset Bubbles Different?

Lise Clain‐chamosset‐yvrard (1) , Xavier Raurich (2) , Thomas Seegmuller (3)

1 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne
2 University of Barcelona
3 AMSE - Aix-Marseille Sciences Economiques

Several papers explain why asset bubbles are observed when growth is large. These papers differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. We compare the liquidity and collateral roles of bubbles in an overlapping generations model. When the bubble is deterministic, the equilibrium is identical under these two roles, implying that the same mechanism explains the crowding-in effect of the bubble on growth. With stochastic bubbles, growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to capital investors.

Mots clés: bubble; liquidity; collateral; crowding-in effect; growth

Domaines: Economies et finances

Lise Clain‐chamosset‐yvrard, Xavier Raurich, Thomas Seegmuller. Are the Liquidity and Collateral Roles of Asset Bubbles Different?. Journal of Money, Credit and Banking, In press, ⟨10.1111/jmcb.13007⟩. ⟨hal-04069774⟩