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  • Marten Hillebrand (a1), Tomoo Kikuchi (a2) and Masaya Sakuragawa (a3)


This paper uncovers a mechanism by which bubbles crowd in capital investment. If capital formation is initially depressed by a binding credit constraint, a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional savings, which are channeled to expand investment at the extensive margin, leading to permanently higher capital, output, and wages. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path.


Corresponding author

Address correspondence to: Tomoo Kikuchi, Centre on Asia and Globalisation, Lee Kuan Yew School of Public Policy, National University of Singapore, 469C Bukit Timah Road, 259772, Singapore; e-mail:


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We thank Costas Azariadis, Aditya Goenka, Christian Hellwig, Tomohiro Hirano, Basant Kapur, Matsuyama Kiminori, Noriyuki Yanagawa, and Yan Zhang for helpful comments and discussions. We also thank an anonymous referee for constructive comments and suggestions. This research is supported by Lee Kuan Yew School of Public Policy, National University of Singapore and Japan Society for the Promotion of Science Grants-in-Aid for Scientific Research (B) 22330062.



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  • Marten Hillebrand (a1), Tomoo Kikuchi (a2) and Masaya Sakuragawa (a3)


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