Annals of Finance

, Volume 14, Issue 3, pp 353–377 | Cite as

Bubbles, growth and imperfection of credit market in a two-country model

  • Ryosuke ShimizuEmail author
Research Article


This study extends Hirano and Yanagawa (Rev Econ Stud 84(1):406–443, 2017) to an asymmetric two-country model and examines bubbles effects on each country’s long-run economic growth rate. This study also provides numerical examples with respect to the relationship between each country’s growth rate and their financial frictions in the balanced growth equilibria with bubbles and without bubbles. It shows that foreign bubbles have positive and negative effects on both countries’ growth rates, and which effect dominates depends on the level of financial development in both countries. In this study, the positive effect of bubbles tends to dominate when the total level of financial frictions in both countries is relatively low. When the total effect of bubbles on the growth rate is positive, the burst of foreign bubbles leads to a decrease in the growth rate in both countries. This implies that there is a positive correlation between foreign bubbles and the domestic as well as the foreign country’s growth rate.


Bubbles Asymmetric two-country model Financial frictions Economic growth 

JEL Classification

E44 F41 F43 


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Graduate School of EconomicsKyoto UniversityKyotoJapan

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