Working Paper

Bubbles, Endogenous Growth and Financial Stability


This paper studies the dynamic ownership of risky asset price bubbles and its implications for financial stability and real activity in a heterogeneous agent model with occasionally binding borrowing constraints. It shows that the intensity of the banking crisis and the quantitative effects on real activity are mostly determined by both the overall contamination of the heterogeneous banking sector and the individual exposure of banks to the risky bubble. The more banks fail following the burst of the bubble, the deeper is the recession and the slower is the recovery. Importantly, the dynamics of bubble growth matters for financial stability: banks prefer to invest in the bubble at the beginning of its development, which makes this period extremely vulnerable to financial shocks. Although a banking supervision rule that dampens the impact of the bursting bubble should be very strict at the beginning of the bubble's growth, such rule weakens the financial health of the banks and makes them more vulnerable to economic shocks.


The paper was presented at:

  • Scottish Graduate Programme in Economics Residential Conference (SGPE), Crieff, 9-10 January 2020

  • Money Macro and Finance PhD Conference (MMF), Virtual Conference, 11 August 2020

  • Annual Congress of the European Economic Association (EEA), Virtual Conference, 24-27 August 2020

  • Scottish Economic Society Annual Conference (SES), Virtual Conference, 26-28April 2021

  • Annual Southern PhD Economics Conference (ASPEC), Virtual Conference, 8-9 June 2021

  • Symposium on Money, Banking and Finance, Virtual Conference, 17-18 June 2021

  • International Computing in Economics and Finance (CEF), Virtual Conference, 16-18 June 2021

  • European Economics and Finance Society (EEFS), Virtual Conference, Virtual Conference, 23-25 June 2021

  • International Conference on Macroeconomic Analysis and International Finance (ICMAIF), Rethymno, 29-31 August 2021

Work in Progress

Asset Price Bubbles and Monetary Policy: Deflate the bubble?


This paper studies monetary policy in a New Keynesian model with asset price bubbles. It shows that monetary policy targeting asset prices can partially deflate an asset price bubble and affects the way the bubble is financed.

The paper was presented at:

  • Money Macro and Finance Conference Annual Conference (MMF), Virtual Conference, 1-3 September 2021

Stock Market Bubbles and Monetary policy: a Bayesian Analysis


This paper develops and estimates a DSGE model with stock market bubbles and nominal rigidities using Bayesian methods. The estimation is processed using a Markov jump-linear-quadratic (MJLQ) version of this DSGE model, where uncertainty takes the form of different regimes that follow a Markov process.