Financial Institution, Asset Bubbles and Economic Performance

27 Pages Posted: 28 Feb 2011

See all articles by Tomohiro Hirano

Tomohiro Hirano

Royal Holloway, U of London and Center for Macroeconomics at the London School of Economics and the Canon Institute for Global Studies

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics

Date Written: October 1, 2010

Abstract

This paper explores the relation between the quality of financial institution and asset bubbles. In this paper, we will show that bubbles can improve the macro performance even if the quality of financial institution is very poor and the financial market does not work well. In this sense, the high quality of financial institution and bubbles are substitutes. We will explore, however, that they are not perfect substitutes. Bubbles may burst. If bubbles burst, the economic performance must go down if the quality of financial institution is low. Hence, we will show that not relaying on bubbles, but improving the quality of financial institution is important for long run macro performance.

Keywords: Asset Bubbles, Financial Institution, Burst of Bubbles

JEL Classification: E44

Suggested Citation

Hirano, Tomohiro and Yanagawa, Noriyuki, Financial Institution, Asset Bubbles and Economic Performance (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=1763678 or http://dx.doi.org/10.2139/ssrn.1763678

Tomohiro Hirano (Contact Author)

Royal Holloway, U of London and Center for Macroeconomics at the London School of Economics and the Canon Institute for Global Studies ( email )

London
United Kingdom

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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