the collateral channel how real estate shocks affect corporate investment abstract what is the impact of real estate prices on corporate investment in the presence of financing frictions firms use pledgeable assets as collateral to finance new projects through this collateral channel shocks to the value of real estate can have a large impact on aggregate investment to compute the sensitivity of investment to collateral value we use local variations in real estate prices as shocks to the collateral value of firms that own real estate over the 1993 2007 period the representative us corporation invests 0 06 out of each 1 of collateral jel d22 g31 r30

banking bubbles and financial crises this paper develops a tractable macroeconomic model with a banking sector in which banks face endogenous borrowing constraints there is no uncertainty about economic fundamentals banking bubbles can emerge through a positive feedback loop mechanism changes in household confidence can cause the bubbles to burst resulting in a financial crisis credit policy can mitigate economic downturns the welfare gain is larger when the government interventions are more front loaded given that the government injects the same amount of liquidity in terms of present value bank capital requirements can prevent the formation of banking bubbles by limiting leverage but if too restrictive will lead to less lending and hence lower production

dynamic inefficiency endogenous growth and ponzi games we show that in competitive endogenous growth models without externalities balanced growth equilibria are dynamically efficient with learning by doing externalities dynamic inefficiency may exist but due to the mix of capital rather than its scale these results are obtained independent of whether or not lifetimes are finite or generations overlap in olg models with externalities we show that ponzi games may be feasible even though equilibria are characterized by undersaving

adverse selection in the overlapping generations model the case of pure exchange abstract we examine the general equilibrium consequences of credit rationing that results from an adverse selection problem relative to a full information benchmark economy static incentive problems result in reductions in the rate of return at inside money equilibria and hence can cause dynamic inefficiency these problems also create a role for outside money and may convert otherwise classical into samuelsonian economies however even the presence of money does not support steady state equilibria with constrained optimality properties policies that do support constrained optima are outlined as are the consequences of credit rationing for the financing of government deficits journal of economic literature classification numbers e13 e40 e44 e50 g14

optimism pessimism and financial bubbles this paper shows that it is possible to extend the scope of the existence of rational bubbles when uncertainty is introduced associated with rank dependent expected utility this rdu assumption can be viewed as a transformation of probabilities depending on the pessimism optimism of the agent the results show that pessimism favors the existence of deterministic bubbles when optimism may promote the existence of stochastic bubbles moreover under pessimism the rdu assumption may generate multiple bubbly equilibria the rdu assumption also leads to new conditions ensuring the absence of pareto optimality of the competitive equilibrium without bubbles these conditions still govern the existence of bubbles

switching bubbles from outside to inside bubbles abstract the united states has recently experienced two asset price bubbles the dot com and the housing bubbles these bubbles had very different effects on investment and debt of manufacturing firms in this paper i develop a framework to understand the differential effect of two types of rational bubbles i distinguish between i outside bubbles which i define as savers purchasing and selling costless assets not attached to inputs of production and ii inside bubbles which i define as savers buying an input of production e g land or houses only as a store of value the model is an olg economy with savers and entrepreneurs savers save to consume when they are old entrepreneurs can borrow to invest but they face a collateral constraint in this environment rational bubbles can emerge i show that the size of an inside bubble is larger i also find that when the economy switches from an outside to an inside bubble manufacturing or non housing investment and debt is lower consistent with the u s experience finally i show that even though steady state consumption is higher with an outside bubble a social planner would prefer an inside bubble when the productivity of entrepreneurs is low

the material experiential asymmetry in discounting when experiential purchases lead to more impatience consumers routinely make decisions about the timing of their consumption making tradeoffs between consuming now or later most of the literature examining impatience considers monetary outcomes i e delaying dollars implicitly assuming that how the money is spent does not systematically alter impatience levels and patterns the authors propose an impatience asymmetry for material and experiential purchases based on utility duration five studies provide evidence that consumers are more impatient toward experiential purchases compared to material purchases and that this increased impatience is driven by whether the value is extracted over a shorter utility duration often associated with experiential purchases or a longer utility duration often associated with material purchases thus when an experience is consumed over a longer period of time the results show that impatience can be diminished additional results show that the effect holds in both delay and expedite frames and suggest that the results cannot be explained by differences in scheduling time sensitivity affect ownership future time perspective or future connectedness

financial crises and liquidity shocks a bank run perspective abstract in contrast with the financial multiplier literature this note explores a case in which the shock triggering a financial crisis stems from the financial sector itself it is not a shock stemming from the real sector which gets amplified by say agency problems the basic intuition is provided by the bank run literature of the diamond and dybvig 1983 variety financial development is modeled as a mechanism that endows real assets e g land and capital with liquidity however liquidity can be impaired by shocks that are equivalent to a bank run liquidity creation enhances real asset prices while a liquidity crunch generates asset price collapse this bubble looking episode is not driven by standard fundamentals although it is fully in line with rationality in this context devoid of other frictions like price stickiness the note examines the effect of monetary policy in the absence of nominal rigidities it shows that preventing price deflation is not enough to offset relative to output asset price meltdown but lower policy interest rates increase relative asset prices and steady state output moreover in the neighborhood of a first best capital allocation an increase in the liquidity of capital may lower the welfare of the representative individual even if the higher liquidity of capital is sustainable and hence not destroyed by future crash illustrating the possibility of excessive financial innovation an extension of the basic model supports the conjecture that low policy interest rates may have given further incentives to the development of shadow banking

speculative growth hints from the u s economy we propose a framework for understanding episodes of vigorous economic expansion and extreme asset valuations we interpret this phenomenon as a high valuation equilibrium with a low cost of capital based on optimism about future funding the key ingredient for such equilibrium is feedback from increased growth to a decline in the long run cost of capital this feedback arises when an expansion comes with technological progress in the capital sector when fiscal rules generate procyclical fiscal surpluses when the rest of the world has lower expansion potential or high saving needs and when financial constraints are relaxed by the expansion itself

is land titling in sub saharan africa cost effective is land titling in sub saharan africa cost effective a cost benefit analysis suggests that the current system of formal titling should not be extended in rural madagascar and that any new system of land registration would have to be quite inexpensive to be worthwhile indeed establishing a modern property rights system without legally recognizing informal rights may expand the scope for rent seeking thus creating additional insecurity atwood 1990 purchasing a titled plot without easily being able to update the name on the document exposes the buyer to the risk that a relative of the seller sharing the family name might subsequently claim the plot or challenge the transfer analyses omitted here for brevity indicate that there is no significant advantage to owning titled land in terms of a household s access to formal credit after controlling for the household s landholdings within the mailles such land being much more likely to be titled and titled plots are no more likely to be used as collat

the costs of financial crises resource misallocation productivity and welfare in the 2001 argentine crisis the costs of financial crises financial crises in emerging market countries appear to be very costly both output and a host of partial welfare indicators decline dramatically the magnitude of these costs is puzzling both from an accounting perspective factor usage does not decline as much as output resulting in large falls in measured productivity and from a theoretical perspective towards a resolution of this puzzle we present a framework that allows us to i account for changes in a country s measured productivity during a financial crises as the result of changes in the underlying technology of the economy the efficiency with which resources are allocated across sectors and the efficiency of the resource allocation within sectors driven both by reallocation amongst existing plants and by entry and exit and ii measure the change in the country s welfare resulting from changes in productivity government spending the terms of trade and a country s international investment position we apply this framework to the argentine crisis of 2001 using a unique establishment level data set and find that more than half of the roughly 10 decline in measured total factor productivity can be accounted for by deterioration in the allocation of resources both across and within sectors we measure the decline in welfare to be on the order of one quarter of one years gdp

stable near rational sunspot equilibria abstract we introduce a new class of solutions to nonlinear forward looking models called near rational sunspot equilibria nrse nrse are natural nonlinear extensions of the usual sunspot equilibria associated with the linearized version of the economy and are near rational in that agents use the optimal linear forecasting model when forming expectations generic results for existence and stability under learning are established nrse in indeterminate nonlinear models are found to be stable under learning provided that the corresponding linearized model s minimal state variable solution is e stable nrse are readily computable and our results make it possible to use the standard linear tools to search for stable nrse we illustrate our results using a canonical nonlinear new keynesian model

the international transmission of credit bubbles theory and policy we live in a new world economy characterized by nancial globalization and historically low interest rates this environment is conducive to countries experiencing credit bubbles that have large macroeconomic eects at home and are quickly propagated abroad in previous work we built on the theory of rational bubbles to develop a framework to think about the origins and domestic eects of these credit bubbles this paper extends that framework to include many countries and general preferences and uses it to study how nancial integration aects the properties of credit bubbles how the latter are transmitted across countries and the role of international policy coordination

asset price shocks financial constraints and investment evidence from japan this paper examines investment spending of japanese firms around the asset price bubble in the late 1980s and makes three contributions to our understanding of how stock valuations affect investment first corporate investment responds significantly to nonfundamental components of stock valuations during asset price shocks fundamentals matter less clearly the stock market is not a sideshow second the time series variation in the sensitivity of investment to cash flow is affected more by changes in monetary policy than by shifts in collateral values finally asset price shocks primarily affect firms that rely more on bank financing and not necessarily those that use equity markets for financing only the investment of bank dependent firms responds to nonfundamental valuations in addition the cash flow sensitivity of bank dependent firms with large collateral assets decreases when asset prices become inflated but increases dramatically when asset prices collapse and monetary policy tightens

where do property rights matter more explaining the variation in demand for property titles across cities in mexico this paper examines the variation in the value of property rights to housing in mexico focusing specifically on differences between urban housing markets roughly 30 of owner occupied houses in mexico do not have a proper deed houses with no deed are estimated to be five percent less valuable than otherwise similar houses with a full deed yet this premium varies widely across cities i match data from the 2012 and 2014 national survey of household incomes and expenditures to different sources of city level data in order to examine hypotheses explaining this variation in a multilevel regression framework i find that deeds are valued more in cities with more highly educated residents more political competition and more voting measures of local economic activity degree of informality and the regulatory bureaucracy are not associated with higher value to full property rights additionally i find that more educated households value deeds more and having a deed is more valuable for larger houses in neighborhoods with less vacancy and higher infrastructure quality based on these results i suggest funds to subsidize titling should be redirected to places where titles are worth more more broadly i suggest policymakers reconsider framing property titling programs as poverty alleviation low income households would benefit more from subsidies for improvements to housing and residential infrastructure at the same time the federal government should further push to reduce the costs of transferring property

asset bubbles and bailouts as long as bubble size is relatively small bubbles increase production level but once the size becomes too large then bubbles reduce it given this non monotonic relationship this paper investigates the relationship between bubbles and government bailouts it shows that bailouts for bursting bubbles may positively influence ex ante production efficiency and relax the existence condition of stochastic bubbles the level of bailouts has a non monotonic relationship with production efficiency and a partial bailout policy achieves production efficiency moreover it examines the welfare effects of bailout policies rigorously and shows that even non risky bubbles may be undesirable for taxpayers

asset bubbles credit market imperfections and technology choice abstract this paper introduces a bubbly asset into the matsuyama 2007 model with credit market imperfections and multiple technologies and shows that there can exist multiple bubbly steady states and bubbles may cause underdevelopment traps by preventing the adoption of high productivity technology

taxation bubbles and endogenous growth we study the interplay between taxation bubble formation and economic growth a rational bubble may be beneficial when growth is fueled by public investment or r d externalities and the government levies taxes on bubble returns to finance this investment our main result challenges the conventional view about the negative effect of bubbles in endogenous growth grossman and yanagawa 1993

money and collateral this paper presents a model in which money and collateral are both essential and complement each other as media of exchange the model has implications for asset prices output in ation and monetary policy both in steady state and

identification of financial factors in economic fluctuations we estimate demand supply monetary investment and nancial shocks in a var identified with a minimum set of sign restrictions on us data we find that financial shocks are major drivers of fluctuations in output stock prices and investment but have a limited effect on inflation in a second step we disentangle shocks originating in the housing sector shocks originating in credit markets and uncertainty shocks in the extended set upfinancial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output

bubbles and capital flow volatility causes and risk management emerging market economies are fertile ground for the development of real estate and other financial bubbles despite these economies significant growth potential their corporate and government sectors do not generate the financial instruments to provide residents with adequate stores of value capital often flows out of these economies seeking these stores of value in the developed world bubbles are beneficial because they provide domestic stores of value and thereby reduce capital outflows while increasing investment but they come at a cost as they expose the country to bubble crashes and capital flow reversals we show that domestic financial underdevelopment not only facilitates the emergence of bubbles but also leads agents to undervalue the aggregate risk embodied in financial bubbles in this context even rational bubbles can be welfare reducing we study a set of aggregate risk management policies to alleviate the bubble risk we show that prudential banking regulation sterilization of capital inflows and structural policies aimed at developing public debt markets and property rights all have a high payoff in this environment

globalization and financial development a model of the dot com and the housing bubbles abstract in the last decade the united states experienced the burst of the dot com and the housing bubbles i develop a model to study the relationship between globalization and the emergence of rational bubbles i also analyze how the effect of globalization on house prices depends on the type of bubble i show that bubbles cannot arise in a financially developed country in autarky in contrast as globalization progresses bubbles are more likely to appear in the financially developed country i also show that house prices increase with globalization only when the bubble is attached to houses this prediction is consistent with empirical evidence for u s metropolitan areas

capital reallocation and liquidity this paper studies the cyclical properties of capital reallocation and the frictions which inhibit such reallocation we show that the amount of capital reallocation and the benefits to reallocation vary at the business cycle frequency the amount of capital reallocation is procyclical in contrast the benefits to capital reallocation appear countercyclical we measure the amount of reallocation using data on flows of capital across firms and the benefits to capital reallocation using several measures of the cross sectional dispersion of the productivity of capital we then study a calibrated model of an economy where capital reallocation is costly and impute the cost of reallocation which is consistent with the amount of and benefits to reallocation in the data we find that the cost of reallocation needs to be substantially countercyclical to be consistent with the observed joint cyclical properties of reallocation and productivity dispersion the cyclical variation in this cost is interpreted as variation in the liquidity of capital broadly defined since physical costs are unlikely to vary countercyclically

asset bubbles economic growth and a self fulfilling financial crisis abstract a tractable model in which asset bubbles can exist in spite of infinitely lived agents is presented an intrinsically useless asset has a positive value and raises welfare because it helps investors with idiosyncratic productivity to obtain more credit in imperfect financial markets however the bubbly equilibrium is only the second best moreover bubbles may burst and this leads to recessions the model s analytical solution allows for the study of many policies we find that a policy of purchasing the asset avoids financial crises but nevertheless results in the second best outcome a policy that taxes depositors and subsidizes investors both prevents crashes and achieves the first best outcome

asset bubbles in an overlapping generations model with endogenous labor supply this paper examines the effects of asset bubbles in an overlapping generations model with endogenous labor supply we show analytically that asset bubbles can lead to an expansion in steady state capital investment employment and output under certain conditions

economic growth with bubbles this paper presents a stylized model of economic growth with bubbles this model views asset price bubbles as a market generated device to moderate the effects of frictions in financial markets improving the allocation of investments and raising the capital stock and welfare the model illustrates various channels through which asset price bubbles affect the incentives for innovation and economic reforms and therefore the rate of economic growth the model also offers a new perspective on the effects of financial development on asset price bubbles and economic growth

untitled a study of formal and informal property rights in urban ecuador we explore the substitutability of formal and informal property rights using new survey data from ecuador where households have both formal and informal claims to urban residential property we develop a model of property transactions that distinguishes between transferable and non transferable claims and show how this distinction affects the interpretation of hedonic price regressions the unconditional effect of title is to raise properties value by 23 5 however we also find that informal property rights can substitute effectively for formal property rights and suggest that titling programmes should be targeted at young disorganised communities if they are to benefit the recipients

is land titling in sub saharan africa cost effective evidence from madagascar formalizing land rights has been promoted as a way to encourage agricultural investment and stimulate land markets yet little is known about the benefits of such policies in sub saharan africa where the preconditions for success are less favorable the analysis uses a large sample of plots from an intensively titled rice growing area of madagascar and compares land specific investments land productivity and land values for titled and untitled plots cultivated by the same household having a title has no significant effect on plot specific investment and correspondingly little effect on land productivity and land values these results are broadly consistent with a simulation of a theoretical model of investment under expropriation risk calibrated to the same data a cost benefit analysis suggests that the current system of formal titling should not be extended in rural madagascar and that any new system of land registration will have to be quite inexpensive to be worthwhile

bubbles and capital flows abstract 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 a 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 could eventually provide a simple account of some real world phenomena that have been difficult to model before such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

were japanese stock prices too high abstract this paper asks whether market fundamentals can explain the recent run up and decline of japanese equity values and price earnings ratios accounting differences explain about half of the long run disparity between u s and japanese p e s for example if japanese firms used u s accounting rules the japanese p e ratio would have been 32 6 not 53 7 in 1989 accounting differences cannot however explain the doubling of this ratio in 1986 nor its decline in 1990 similarly we are unable to isolate changes in required stock returns or growth expectations that are large enough to explain recent japanese stock price movements

monetary policy and rational asset price bubbles i examine the impact of alternative monetary policy rules on a rational asset price bubble through the lens of an olg model with nominal rigidities a systematic increase in interest rates in response to a growing bubble is shown to enhance the uctuations in the latter

the demand for tenure security in developing countries abstract we use survey data for manila the philippines to estimate hedonic functions for formal and squatter housing values we show that on average a rented squatter unit in manila would rent for 15 percent more if it were a formal sector unit an owned squatter unit would sell for 25 percent more if it were a formal sector unit these percentages are interpreted as eviction risk discount for squatter dwellings we conclude that assistance projects that provide secure tenure over a wide area will bestow comparatively greater benefits on lower income households and to those in newer less established settlements since the risks that they bear initially are greater

intangible capital relative asset shortages and bubbles abstract purely technological factors can be a fundamental force behind the emergence of asset price bubbles in developed economies we analyze an economy in which the production technology utilizes both physical and intangible capital where the latter cannot be used as collateral for borrowing technological change in the form of increased importance of intangible capital in production sharpens the borrowing constraints of entrepreneurs leading to a scarcity of high yield assets relative to low yield ones this can create the conditions for asset bubbles additionally due to the financial frictions standard dynamic efficiency tests are not valid and bubbles are not pareto improving

on the interplay between speculative bubbles and productive investment the aim of this paper is to study the interplay between long term productive investments and more short term and liquid speculative ones a three period lived overlapping generations model allows us to make this distinction agents have a portfolio decision when young they can invest in human capital that is a productive long term investment that provides a return during the following two periods when young or in the middle age they can invest in a bubble young individuals can also borrow on a credit market to finance the productive investment however the amount borrowed is limited by a credit constraint we show that the existence of a stationary bubble raises productive investment and production when the bubleless economy is credit constrained and dynamically efficient indeed young agents sell short the bubble to increase productive investments whereas traders at middle age transfer wealth to old age the bubble allows to relax the credit constraint we outline that a permanent technological shock inducing either a larger return of capital in the short term or a similar increase in the return of capital in both periods raises productive capital production and the bubble size we use our framework to discuss the effect on the occurrence of bubbles of financial regulation and fiscal policy

intertemporal coordination with delay options abstract this paper studies equilibrium selection in intertemporal coordination problems with delay options the risk dominant action of the underlying one shot game is selected when frictions are arbitrarily small larger frictions introduce real option effects in the model and inhibit coordination

asset bubbles endogenous growth and financial frictions this paper analyzes the effects of bubbles in an infinitely lived agent model of endogenous growth with financial frictions and heterogeneous agents we provide a complete characterization on the relationship between financial frictions and the existence of bubbles our model predicts that if the degree of pledgeability is sufficiently high or sufficiently low bubbles can not exist they can only arise at an intermediate degree this suggests that improving the financial market condition might enhance the possibility of bubbles we also examine whether bubbles are growth enhancing or growth impairing in the long run we show that when the degree of pledgeability is relatively low bubbles boost long run growth on the other hand when it is relatively high bubbles lower long run growth moreover we examine the effects of the burst of bubbles and show that the effects much depend on the degree of the pldgeability i e the quality of financial system

should central banks burst bubbles some microeconomic issues anti bubble policy is examined in a finite horizon greater fool bubble model with rational agents asymmetric information and short sales constraints this permits the use of standard tools of welfare economics to analyse bubble policies policy is modelled as deflating overpriced assets by revealing information about this overpricing if the central bank is following such a policy then the market interprets inaction as an implicit endorsement of asset prices which raises these prices also the central bank can deflate overpriced assets even if it has no informational advantage over any investors about this overpricing however unless it has such an informational advantage a bubble bursting rule may only make things worse

asset bubbles and endogenous growth abstract we study the interaction between productive and nonproductive savings in economies with endogenous long run growth as in the neoclassical growth setting with overlapping generations asset bubbles can exist in an economy with endogenous growth provided that they are not too large and that the growth rate in the equilibrium without bubbles exceeds the interest rate here the existence conditions for bubbles reflect parameters of tastes and technology we find that bubbles when they exist retard the growth of the economy perhaps even in the long run and reduce the welfare of all generations born after the bubble appears

property rights and investment in urban slums this paper examines the effect of changes in tenure security on residential investment in urban squatter neighborhoods to address the endogeneity of property rights i make use of variation in ownership status induced by a nationwide titling program in peru in a difference in difference analysis i compare the change in housing investment before and after the program among participating households to the change in investment among two samples of nonparticipants my results indicate that strengthening property rights in urban slums has a significant effect on residential investment the rate of housing renovation rises by more than two thirds of the baseline level the bulk of the increase is financed without the use of credit indicating that changes over time reflect an increase in investment incentives related to lower threat of eviction jel o12 o18 p25 p26

fiscal policy in an endogenous growth model in a neoclassical growth model it is possible to make a case for public debt because a balanced growth path may be dynamically inefficient this paper shows that this possibility no longer holds in an endogenous growth model with constant external returns to capital it is shown that an increase in public debt reduces the growth rate so there always exists a future generation that will be harmed and that a reduction in public debt although it increases the growth rate cannot be pareto improving one current generation must be harmed

the price of land for housing in jakarta in spite of its potential value to governments detailed information as to how land prices vary spatially within third world cities is usually lacking this paper discusses the distribution of land prices in jakarta using information provided on a neighbourhood basis by experienced real estate brokers appraised prices were given for different types of residential plot distinguished by tenure and infrastructural provision analysis of the data in jakarta shows the relative importance of infrastructural provision and tenure land title for land prices examination of such data over time makes it possible to test whether and where there has been a spiralling of land prices and in the case of jakarta it is found that recent price increases have been consistently greater in suburban areas and in informal sector plots arising from the massive demand from low income households for affordable housing the paper concludes by drawing out policy implications

frictional unemployment with stochastic bubbles abstract we show that the volatility puzzle in labor economics shimer 2005 stems from the inability of technology shocks to generate sufficient volatility of firm value we introduce non fundamental shocks to firm value akin to bubbles into an otherwise standard search and matching model when calibrated to stock market data stochastic bubbles significantly improve the ability of the matching model to quantitatively explain the volatility of the us labor market an extension with multiple sectors improves the persistence of simulated labor market variables

gender and property formalization conventional and alternative approaches securing property rights in both rural landholdings and urban housing is a much debated feature of current development policy providing title for the household does not guarantee security for women and legal equality may fail to prevent gender differences in property ownership a pro active approach to women s property rights is needed disenchantment with state programs delivering individual titles has led to calls for alternative strategies emphasizing local or customary authorities and procedures this paper questions the ability of either approach to address gender inequalities effectively without affirmative action but suggests that informal responses within state institutions can help c 2007 elsevier ltd all rights reserved

growth enhancing bubbles this article challenges the conventional wisdom that speculation in financial markets reduces long run growth it shows that the real impact of a rational deterministic speculative bubble depends on the type of asset that is being speculated on speculative bubbles on equity raise the market value of firms thus encouraging entrepreneurship firm creation investment and growth on the other hand speculation on other types of assets is shown to be unambiguously growth impairing the model can explain some stylized facts about financial development and growth finally regulatory implications are discussed briefly