Intangible Capital, Relative Asset Shortages and Bubbles

Author/Editor:

Stefano Giglio ; Tiago Severo

Publication Date:

November 1, 2011

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We analyze an overlapping generations economy with financial frictions and accumulation of both physical and intangible capital. The key difference between them is that intangible capital cannot be used as collateral for borrowing. As intangibles become more important in production, financial frictions tighten and equilibrium interest rates decline, creating the conditions for the emergence of rational bubbles. We also analyze the question of dynamic efficiency, demonstrating that, in the presence of financial frictions, neither the interest rate test nor the test proposed by Abel et al. (1989) are appropriate. Finally we show that, in general, rational bubbles are not Pareto improving in our framework.

Series:

Working Paper No. 2011/271

Subject:

Asset bubbles Capital accumulation Financial crises Intangible capital Labor National accounts Self-employment

English

Publication Date:

November 1, 2011

ISBN/ISSN:

9781463925260/1018-5941

Stock No:

WPIEA2011271

Pages:

38

Please address any questions about this title to publications@imf.org