Macroeconomic Implications of Asset Bubbles

In this article, we review the literature studying the macroeconomic implications of asset bubbles. We first discuss the definitions of rational asset bubbles and the limitations of the standard approach. We next use examples to illustrate several mechanisms that can generate asset bubbles. We then survey macroeconomic models with asset bubbles generated by one of these mechanisms. We discuss how asset bubbles affect economic growth, business cycles, and fiscal and monetary policies in closed and open economies. We conclude by proposing several promising directions for future research.