Asset bubbles in explaining top income shares

The Journal of Economic Inequality ◽

10.1007/s10888-021-09481-y ◽

2021 ◽

Author(s):

Saikat Sarkar ◽

Matti Tuomala

Keyword(s):

Housing Market ◽

Asset Price ◽

Capital Gains ◽

Asset Markets ◽

Tax Rates ◽

Monetary Policies ◽

Asset Price Bubbles ◽

Asset Bubbles ◽

Price Bubbles ◽

Top Income Shares

AbstractThis paper considers the role of asset price bubbles (crashes) as an important determinant in seeking a further explanation for top income shares. The asset price bubbles caused at least in part by monetary policies, along with other determinants such as top tax rates and innovativeness are the important drivers to explain the surge in top income shares. The empirical results show that correlation between asset bubbles and top inequality is positive and significant. The regression coefficient of stock and housing market bubbles have a positive effect on top income shares, while the stock and housing market crashes fail to reduce the surge in top income shares. In sum, as the asset markets grow, the share of income going to those at the very top increases and the accumulation of income accelerates if the duration of bubbles expands. Concentration of income at the very top is much more important when capital gains are counted as income.

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Bubbles, Busts, and Blame

10.31228/osf.io/djqvy ◽

2018 ◽

Author(s):

Robert C. Hockett

Keyword(s):

Collective Action ◽

Asset Price ◽

Capital Gains ◽

Asset Markets ◽

Continuous Series ◽

Asset Price Bubbles ◽

Price Bubbles ◽

Knowing That ◽

Present Context ◽

Collective Agent

37 Cornell Law Forum 14 (2011)I argue that financial asset price bubbles and busts, such as those we have recently experienced in the mortgage and securities markets, are compatible with market efficiency, individual rationality, and even ethically unobjectionable behavior. The reason is that they constitute classic recursively self-amplifying collective action problems, the hallmark of which is the efficient aggregation of individually rational behaviors into collectively calamitous outcomes. In the present case, individuals rationally "legged the spread" between cheap borrowing costs and credit-fueled capital gains rates, neither of which market actors could affect in their individual capacities even when knowing that credit would have eventually to run out at some indefinite point in future. The upshot was a continuous series of self-reinforcing credit-fueled asset price rises, followed by a symmetrical series of hoarding-induced asset price drops once credit was exhausted. It is important to emphasize the rationality- and efficiency-compatability side of this story because prescribing a proper cure to our ills presupposes a proper diagnosis. The solution to a collective action problem, of course, is a collective agent. In the present context, that is a macroprudential financial regulator cognizant of her requisite role in tightening credit-money supplies when positive feedback loops emerge in asset markets.

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Monetary Policy and Rational Asset Price Bubbles

The American Economic Review ◽

10.1257/aer.104.3.721 ◽

2014 ◽

Vol 104 (3) ◽

pp. 721-752 ◽

Cited By ~ 117

Author(s):

Jordi Galí

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Aggregate Demand ◽

Asset Price ◽

Optimal Monetary Policy ◽

Monetary Policies ◽

Asset Price Bubbles ◽

Price Bubbles ◽

Price Bubble ◽

The Impact

I examine the impact of alternative monetary policy rules on a rational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interest rates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. The optimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper's main findings call into question the theoretical foundations of the case for “leaning against the wind” monetary policies. (JEL E13, E32, E44, E52, G12)

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A Deterministic Description of Irrational and Semi-Rational Bubbles in Asset Markets

International Journal of Financial Management ◽

10.21863/ijfm/2015.5.2.012 ◽

2015 ◽

Vol 5 (2) ◽

Author(s):

Tanmoy Ganguli

Keyword(s):

Asset Price ◽

Time Frame ◽

Asset Markets ◽

Mathematical Representation ◽

Asset Price Bubbles ◽

Rational Bubbles ◽

Price Bubbles ◽

Hyman Minsky ◽

Linear Maps ◽

Deterministic Description

This present work provides a deterministic description irrational and semi-rational bubbles based on the stylized description forwarded by Hyman Minsky (1972), Day and Huang (1990) respectively. The paper emphasizes on two areas: First, it proposes a mathematical representation of an irrational bubble using piece-wise linear maps in a discrete time frame. Second, it studies the chaotic signals generated by them to explain the instability in asset price bubbles and explains the factors which impact their longevity.

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