BoE paper raises risk of ‘bubbly growth traps’
Asset bubbles can direct resources to low-productivity sectors
Low interest rates may increase the risk of "bubbly growth traps", which could explain the slow recoveries in many advanced economies, according to research published on February 24 by the Bank of England.
Jagdish Tripathy, an economist at the Bank of England, sets out the idea in the staff working paper Bubbly equilibria with credit misallocation. His model has two sectors, one with high pledgeability and low productivity (the "traditional" sector, seen as a bastion of stability), and the other
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