TY  - JOUR
AU  - Ventura,Jaume
TI  - Bubbles and Capital Flows
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9304
PY  - 2002
Y2  - November 2002
UR  - http://www.nber.org/papers/w9304
L1  - http://www.nber.org/papers/w9304.pdf
N1  - Author contact info:
Jaume Ventura
CREI
Universitat Pompeu Fabra
Ramon Trias Fargas, 25-27
08005-Barcelona
SPAIN
Tel: +34 93 542 1765
Fax: +34 93 542 1860
E-Mail: jventura@crei.cat
AB  - This paper presents a stylized model of international trade and asset price bubbles. Its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world. These bubbles absorb local savings, eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries. Through this channel, bubbles act as substitute for international capital flows, improving the international allocation of  investment and reducing rate-of-return differentials across countries. This view of asset price bubbles has important implications for the way we think about economic growth and fluctuations. It also provides a simple account of some real world phenomenae that have been difficult to model before, such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries.
ER  -