Endogenous Business Cycles with Bubbles

By using a simple macroeconomic model, this study demonstrates the possibility that a bubble exists whether the economy is in a boom or a recession. We use an overlapping-generations model with endogenous growth. The results demonstrate that in an economy where banks can lend to consumers, there exists a single equilibrium path in which the economic growth rate fluctuates with the bubble. On the contrary, in an economy where banks cannot lend to consumers, the equilibrium path does not exist.