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- Title
ASSET PRICE BUBBLES AND TECHNOLOGICAL INNOVATION.
- Authors
Shin, Jong Kook; Subramanian, Chetan
- Abstract
We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical "lean against the wind" credit policy.
- Subjects
ECONOMIC bubbles; TECHNOLOGICAL innovations; CREDIT control; ECONOMIC development; RESEARCH &; development
- Publication
Economic Inquiry, 2019, Vol 57, Issue 1, p482
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/ecin.12695