arXiv subjects

Tomohiro Hirano

Publications and source records attributed to Tomohiro Hirano.

15 recordsLinked to original sources

arXiv2026

Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles

We develop a macro-finance model in which leverage creates a positive feedback loop between capital investment and land prices. When leverage is below a threshold, land prices equal the present value of rents. Relaxing leverage lowers the productivity of the marginal investor and the interest rate until the fundamental value diverges. The economy then undergoes a phase transition to unbalanced growth. Demand for a store of value makes land prices grow faster than rents, so a bubble necessarily emerges. When the upper tail of the productivity distribution is sufficiently thick, this regime can prevail at arbitrarily high leverage.

econ.TH↗

arXiv2026

General-Purpose Technologies and Stock Market Bubbles

We develop a macro-finance model linking stock price bubbles to a general-purpose technology (GPT), such as information technology and artificial intelligence. Knowledge spillovers differ across production factors, generating unbalanced growth and causing stock prices to outgrow dividends. Under our conditions, the unique equilibrium contains a bubble on dividend-paying stocks even though agents share common beliefs and rationally anticipate its collapse. The probability that spillovers persist affects the bubble's duration but not its existence. When spillovers equalize as the technology matures, the economy reaches balanced growth and the bubble collapses. Through IPO proceeds, the bubble can increase R\&D employment, while accumulated knowledge remains productive afterward. More broadly, balanced growth is a knife-edge property: the restrictions used to obtain it make stock prices and dividends grow at the same rate, thereby ruling out rational bubbles on dividend-paying assets by construction.

econ.TH↗

arXiv2026

Credit Expansion, Land Speculation, and Low-Interest-Rate Policy

This paper analyses the impact of credit expansions arising from decreases in collateral requirements or more expansionary monetary policies on long-term productivity in a model with endogenous growth. Credit expansions associated with relaxation of land collateral financing (capital collateral financing) will be productivity-and growth-retarding (enhancing). Without appropriate financial regulation, expansionary monetary policy may so encourage land speculation using leverage that productive capital investment is decreased; there is a temporary asset boom, but slower economic growth. The generation that experienced the asset price boom is better off, but subsequent generations are worse off because of low growth.

econ.TH↗

arXiv2025

Land and Infinite Debt Rollover

Since McCallum (1987), it is well known that in an overlapping generations (OLG) economy with land, the equilibrium is Pareto efficient because with balanced growth, the interest rate exceeds the economic growth rate ($R>G$), which rules out infinite debt rollover (a Ponzi scheme). We show that once we remove knife-edge restrictions on the production function and allow unbalanced growth, under some conditions an efficient equilibrium with land bubbles necessarily emerges and infinite debt rollover becomes possible, which is a markedly different insight from the conventional view derived from the Diamond (1965) landless economy. We also examine the possibility of Pareto inefficient equilibria.

econ.TH↗

arXiv2025

Rational Bubbles Attached to Real Assets

A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present discounted value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational bubbles attached to real assets, emphasizing the following three points. (i) There exist plausible economic models in which bubbles inevitably emerge in the sense that all equilibria are bubbly. (ii) Such models are necessarily nonstationary but their long-run behavior can be analyzed using the local stable manifold theorem. (iii) Bubbles attached to real assets can naturally and necessarily arise with economic development. We illustrate these three points in various settings attesting that bubbles may necessarily emerge for aggregate stocks, land, and other assets.

econ.TH↗

arXiv2025

Housing Bubbles with Phase Transitions

We analyze how equilibrium housing prices are determined in the process of economic development within an overlapping generations model with perfect housing and rental markets. We characterize the rent growth rate in all equilibria. The economy exhibits a two-stage phase transition: as incomes of home buyers rise, the equilibrium regime changes from fundamental to bubble possibility, where fundamental and bubbly equilibria coexist. With even higher incomes, fundamental equilibria disappear and housing bubbles become a necessity. We also discuss extensions and refinements such as equilibrium uniqueness, multiple savings vehicles, welfare implications, credit- and expectation-driven bubbles, and testable implications of our theory.

econ.TH↗

arXiv2024

Unbalanced Growth and Land Overvaluation

Historical trends suggest the decline in importance of land as a production factor but its continued importance as a store of value. Using an overlapping generations model with land and aggregate uncertainty, we theoretically study the long-run behavior of land prices and identify economic conditions under which land becomes overvalued on the long-run trend relative to the fundamentals defined by the present value of land rents. Unbalanced growth together with the elasticity of substitution between production factors plays a critical role. Around the trend, land prices exhibit recurrent stochastic fluctuations, with expansions and contractions in the size of land overvaluation.

econ.TH↗

arXiv2024

Equilibrium Selection in Pure Bubble Models by Dividend Injection

Rational pure bubble models feature multiple (and often a continuum of) equilibria, which makes model predictions and policy analyses non-robust. We show that when the interest rate in the fundamental equilibrium is below the economic growth rate ($R<G$), a bubbly equilibrium with $R=G$ exists. By injecting dividends to the bubble asset that grow slower than the aggregate economy, we can eliminate the fundamental steady state and resolve equilibrium indeterminacy. We show the general applicability of dividend injection through examples in overlapping generations and infinite-horizon models with or without production or financial frictions.

econ.TH↗

arXiv2024

Recurrent Stochastic Fluctuations with Financial Speculation

Throughout history, many countries have repeatedly experienced large swings in asset prices, which are usually accompanied by large fluctuations in macroeconomic activity. One of the characteristics of the period before major economic fluctuations is the emergence of new financial products; the situation prior to the 2008 financial crisis is a prominent example of this. During that period, a variety of structured bonds, including securitized products, appeared. Because of the high returns on such financial products, many economic agents were involved in them for speculative purposes, even if they were riskier, producing macro-scale effects. With this motivation, we present a simple macroeconomic model with financial speculation. Our model illustrates two points. First, stochastic fluctuations in asset prices and macroeconomic activity are driven by the repeated appearance and disappearance of risky financial assets, rather than expansions and contractions in credit availability. Second, in an economy with sufficient borrowing and lending, the appearance of risky financial assets leads to decreased productive capital, while in an economy with severely limited borrowing and lending, it leads to increased productive capital.

econ.TH↗

arXiv2024

Rational Bubbles: A Clarification

"Rational bubble", as introduced by the famous paper on money by Samuelson (1958), means speculation backed by nothing. The large subsequent rational bubble literature has identified attaching bubbles to dividend-paying assets in a natural way as an important but challenging question. Miao and Wang (2018) claim to "provide a theory of rational stock price bubbles". Contrary to their claim, the present comment proves the nonexistence of rational bubbles in the model of Miao and Wang (2018). We also clarify the precise mathematical definition and the economic meaning of "rational bubble" in an accessible way to the general audience.

econ.GN↗

arXiv2024

Credit, Land Speculation, and Long-Run Economic Growth

This paper presents a model that studies the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy, with the driver of growth lying in one sector (manufacturing) but not in the other (real estate). We show that it is not so much aggregate credit expansion that matters for long-run productivity and economic growth but sectoral credit expansions. Credit expansions associated mainly with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulations, low interest rates and more expansionary monetary policy may so encourage land speculation using leverage that productive capital investment and economic growth are decreased. Unlike in standard macroeconomic models, in ours, the equilibrium price of land will be finite even if the safe rate of interest is less than the rate of output growth.

econ.TH↗

arXiv2024

Bubble Necessity Theorem

Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of bubbles. We establish the Bubble Necessity Theorem in a plausible general class of economic models: with faster long-run economic growth ($G$) than dividend growth ($G_d$) and counterfactual long-run autarky interest rate ($R$) below dividend growth, all equilibria are bubbly with non-negligible bubble sizes relative to the economy. This bubble necessity condition naturally arises in economies with sufficiently strong savings motives and multiple factors or sectors with uneven productivity growth.

econ.TH↗

arXiv2024

On Equilibrium Determinacy in Overlapping Generations Models with Money

This paper provides a detailed analysis of the local determinacy of monetary and non-monetary steady states in Tirole (1985)'s classical two-period overlapping generations model with capital and production. We show that the sufficient condition for local determinacy in endowment economies provided by Scheinkman (1980) does not generalize to models with production: there are robust examples with arbitrary utility functions in which the non-monetary steady state is locally determinate or indeterminate. In contrast, the monetary steady state is locally determinate under fairly weak conditions.

econ.TH↗

arXiv2023

Bubble Economics

This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real assets such as stocks, housing, and land. The main message is that bubbles attached to real assets are fundamentally nonstationary phenomena related to unbalanced growth. We present a bare-bones model and draw three new insights: (i) the emergence of asset price bubbles is a necessity, instead of a possibility; (ii) asset pricing implications are markedly different between balanced growth of stationary nature and unbalanced growth of nonstationary nature; and (iii) asset price bubbles occur within larger historical trends involving shifts in industrial structure driven by technological innovation, including the transition from the Malthusian economy to the modern economy.

econ.GN↗

arXiv2021

The Effect of Social Distancing on the Reach of an Epidemic in Social Networks

How does social distancing affect the reach of an epidemic in social networks? We present Monte Carlo simulation results of a capacity constrained Susceptible-Infected-Removed (SIR) model. The key modelling feature is that individuals are limited in the number of acquaintances that they can interact with, thereby constraining disease transmission to an infectious subnetwork of the original social network. While increased social distancing always reduces the spread of an infectious disease, the magnitude varies greatly depending on the topology of the network. Our results also reveal the importance of coordinating social distancing policies at the global level. In particular, the public health benefits from social distancing to a group (e.g., a country) may be completely undone if that group maintains connections with outside groups that are not following suit.

q-bio.PE↗